Calculating and paying
should be treated carefully. If your employees don’t have fluctuations
in the hours they work, the calculations are likely to be straightforward.
However, any fluctuations in the amount of wages paid each week - from
differing hours or extra payments
- can make holiday pay
a lot more difficult. Here are some tips to help you get it right.
pay is pay
for an employee's annual leave and pay
for statutory holidays. Payment
for annual leave must be made before the annual leave is taken, unless it
is agreed in the employment agreement that it can be paid in the pay
period it relates to.
If you have a payroll
system or outsourced payroll
function, you should check:
- It applies New Zealand legislation
(particularly the Holidays
Act 2003) and not foreign provisions
- The system accurately records all hours
worked per day and payments
paid to the employee
- The system calculates all leave types correctly.
If you don't have a payroll
system or a payroll provider,
you must manually input the data into a spreadsheet or written record, as
part of your wage and time record obligations.
Formulas to Help You
pay must be paid at the greater
- ‘ordinary weekly pay’
(the amount an employee receives under their employment agreement for
an ordinary working week), or
- ‘average weekly earnings’(an
employee’s average weekly earnings for the 12 months immediately
before the end of the last pay
If it isn’t possible to determine an
employee’s ordinary weekly pay,
the Holidays Act 2003 provides
a formula to use. Examples
of paying annual leave and the
as You Go
In limited cases, you can pay
your employee’s holiday pay
as part of their regular pay.
The holiday pay
must not be less than 8% of the employee’s gross earnings and be an
identifiable component of your employee’s pay.
You may include holiday pay
in the regular pay of employees
- are employed on a fixed-term employment agreement for less than 12
- casual employees whose work is so
intermittent or irregular that it isn’t practical for the employer
to provide four weeks annual holidays.
Pay on Termination
Employees who have annual leave entitlements
at the time of termination will be paid those amounts, plus 8% on the
total gross earnings from the employees last anniversary date to the date
of termination (annual leave and alternative holiday
entitlements are included in the gross earnings before the 8% calculation
Employees whose employment ends within 12 months of starting, will be
entitled to 8% holiday pay
on their total gross earnings, less any amounts already paid for annual
leave taken in advance or paid.
To work out how much tax to deduct from holiday
use Inland Revenue’s Calculate tax on holiday
Cashing up Annual Leave
Each year, your employees can ‘cash-up’ a
maximum of one week of their annual leave if you both agree The employee
must submit the request to you in writing, the cashed up annual leave must
be an entitlement and not accrued leave, employees can request to cash-up
less than a week, and more than one request can be made until a maximum of
one week of annual leave is paid.
Once you have agreed to cash-up a portion of your employee's annual leave,
you need to provide the payment
as soon as possible, which will usually be the next pay
day. The value of the payment
must be at least the same as if the employee had taken the holidays.
Tips for Cashed-up Leave
- Cashed-up annual leave should be treated
as an extra pay or
unexpected bonus, it is not to be included in gross earnings for the
purposes of calculating Average Weekly Earnings, Ordinary Weekly Pay
or Average Daily Pay.
- Because it’s treated as an extra pay,
pay as you earn (PAYE)
should be calculated using the rates for lump sum payments.
- If your employee usually has Student Loan
or KiwiSaver deductions made from their pay,
deduct these from the cashed-up annual leave as well.
- Your employee’s Child Support liabilities and Working for Families
Tax Credits entitlement may also need to be adjusted if their family
income has changed.
Employers can’t encourage or pressure employees into cashing up
leave. Likewise, cashing up can’t be raised in wage or salary
negotiations or be a condition of employment. Requests to cash-up can’t
be included in employment agreements, but an employment agreement can
outline the process for making a request.
TO DO IF YOUR BUSINESS IS OPERATING AT A LOSS
It’s not uncommon for businesses to operate at a loss, especially
those still finding their feet. But if your business is losing more money
than it’s bringing in, you’ll need to make some changes to keep your
What is "Operating at a
Operating at a loss is when you’re spending more money than is coming
in to the business.
Businesses often operate at a loss temporarily when starting out or in
periods of growth. This is okay if you’ve got enough in the bank to
cover the costs of running your business until your income picks up.
But if your business is frequently operating at a loss because of slow
sales, you’ll need to make some changes to how your business is running.
Think about consulting an advisor to help you turn things around.
How to know if you’re operating at
- You don’t have enough money to pay your bills.
- Your bank balance is negative and you don’t know how to get it
- You’re not selling the amount you needed to in your forecast, eg
if your business model is reliant on selling ten cups of coffee a day
and you’re selling three.
you know you’ve got money coming in the future — like a big invoice
being paid — that will cover your loss, this is an issue with your cash
flow. You may need to raise or borrow money to cover costs until the
payment is made.
and advice on business finance
What to do if you’re operating at a
Try these steps:
- Reduce your expenses.
- Is there anything you can cut from your spending?
- Can you reduce the amount of drawings you’re taking from the
- Try to negotiate better deals from your suppliers.
- Sell assets you’re no longer using.
- Increase your sales.
- Can you charge more for your product or service?
- How can you sell more of your product or service?
- Can you get more customers?
- Get advice — an advisor may be able to help you turn it around.
need to spend more on marketing to get more customers. Test a small amount
first — spend $100 and see what your results are instead of spending
Claiming Losses at Tax Time
If you claim a loss in your tax return, in most cases you can carry it
forward to lower your income in the next tax year — and therefore reduce
your tax bill when you get to a profit situation.
Avoid these common pitfalls:
- Having your head in the sand about being in a loss position.
- Not having a plan in place to get back out of it.
- Purchasing things you can’t pay for — if you go to a supplier
when you know you can’t pay the invoice, you’re operating in an
insolvent position and can be made bankrupt.