Employer pays annual leave twice

The Employment Relations Authority has upheld an employee’s claim for unpaid annual leave despite the annual leave having been already paid by the employer.  This situation of an employer having to pay annual leave twice arises because the employer did not comply with the correct legal requirements for paying annual leave and providing annual.  The employer paid for the employee’s annual leave on an “as you go” basis so they were paid with each pay. 

This is only allowed if an employee is on a fixed term of less than 12 months or is employed on a so intermittent or irregular basis that it is impractical to provide four weeks annual holidays.  If those situations apply then the employee must agree in writing in their employment agreement to be paid on an “as you go” basis and the holiday pay must be separately identified as an element of their pay and paid at no less than 8%.

The Employment Relations Authority found that the employee was not engaged on an intermittent or irregular basis such as to make it impractical to provide four weeks holidays and therefore the employee was entitled to those annual holidays and for them to be paid.  Payment of those holidays according to the law must be made without any deduction for any prior payment of annual leave.

In this case the annual leave owing amounted to $8,000 because the employee had been employed for only just over a year, but other employers may find themselves paying out far greater sums if employees had been employed on a longer term basis or there are several employees being paid their annual leave in that way when they do not fall within the requirements of the Act.

The requirement to pay annual leave at the time annual leave is taken is so that employees can have a paid break, which is quite different to being paid for having the break but the pay being paid in advance.

Alan Knowsley
Employment Lawyer
Wellington