The Employment Relations Authority has ordered an employer to pay an employee over $12,400 after it carried out unlawful practices when paying holiday pay.

The employee worked for the employer for several years. Over this time he built up extensive annual leave. The employer and employee agreed that the employee could exchange the built-up leave for a number of products the employer produced.

A short time later, the employer told its employees that it would no longer be accruing annual leave for its employees, and instead would pay them an additional 8% as part of their weekly pay.

When the relationship worsened, and the employee left, he complained that he was not paid holiday pay for the entire duration of his employment.

The Tribunal held that the employer failed to pay the employee holiday pay correctly for two reasons.

Firstly, annual leave may not be exchanged for goods and services. Legally, annual leave must be paid in money. Despite the employer providing the employee with goods in exchange for owed annual leave, the employer failed to comply with the law, so the leave was still owed.

Secondly, the employer was not legally allowed to pay the employee 8% of their wage as holiday pay. The employee was employed on a permanent basis, and employers may only pay 8% in lieu of accruing annual leave where the employee:

(a) is employed on a fixed–term agreement to work for less than 12 months; or

(b) works on such an intermittent or irregular basis that it is impracticable for the employer to provide four weeks’ annual holidays.

The Tribunal ordered the employer to pay the employee $14,218 being holiday pay owed for the entire duration of his employment.

It is important that employers understand their legal obligations of when and how they must pay their employees holiday pay, or provide annual leave.

If there are uncertainties about the leave and holiday pay entitlements of your employees, it is wise to speak with a professional experienced in the area.


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