Calculating payment for public holidays, sick, bereavement and domestic violence leave

9 Oct 19

The Employment Court has recently clarified how employers should calculate an employee’s remuneration for public holidays, alternative holidays, sick leave, bereavement leave and domestic violence leave (Other Leave).

Employees are entitled to be paid for Other Leave at a rate of either “relevant daily pay” (RDP) or “average daily pay” (ADP).

RDP means “the amount of pay that the employee would have received had the employee worked on the day concerned”: section 9 of the Holidays Act 2003 (the Act). RDP includes productivity or incentive-based payments (including commission) and payments for overtime, if those payments would have otherwise been received had the employee worked on the day concerned

ADP is calculated by dividing (a) the employee’s gross earnings for the preceding 52 calendar weeks by (b) the number of days during which the employee earned those gross earnings (i.e. the total number of days worked, paid holidays and paid other leave): section 9A of the Act. Section 9A of the Act states that:

  1. An employer may use an employee’s [ADP] for the purposes of calculating payment for [Other Leave] if:
    1. it is not possible or practicable to determine an employee’s RDP under section 9(1); or
    2. the employee’s daily pay varies within the pay period when the holiday or leave falls.

A Full Court in GD (Tauranga) Ltd v Price & Others 2 was asked to consider whether an employer had to calculate other leave at the rate of ADP when an employee’s daily pay varied within the pay period when the Other Leave was taken, even though it was possible and practicable to determine RDP. In other words, the Court was asked to consider whether “may” should be read as “must”.

GD Tauranga Limited (GD) was a building company selling house and land packages under the Generation Home brand. The defendants were employed as sales consultants. The defendants were paid a base salary equivalent to the minimum wage based on 40 hours per week. The defendants were also paid commission which accrued on the date a sale and purchase agreement was declared unconditional (this could be on a day on which a defendant took Other Leave). Because of the commission payments, the defendants’ daily pay varied within each pay period.

If Other Leave was calculated as RDP, the defendants would receive a sum equivalent to the daily portion of their base salary (annual base salary, divided by 52 weeks, divided by 40 hours per week x 8 hours per day), plus any commission payment that would have been received had they worked that day (i.e. any commission that accrued on the day of the Other Leave due to a sale and purchase agreement becoming unconditional on that day).

If Other Leave was calculated as ADP, the employee would receive an average of their annual gross income including the base salary plus commission paid in the preceding 52 years. There was also a possibility of double counting as the ADP calculation resulted in defendants receiving a portion of the commission payments in their average pay, as well as any commission payment that accrued on the day of the Other Leave.

Historically the defendants had been paid ADP for Other Leave. Upon a change in management, the correctness of this was questioned and GD began paying employees RDP for Other Leave. Because of the understandable controversy this caused, GD made an application to the Employment Relations Authority for a ruling on which rate of pay was correct. The case was removed to the Employment Court and heard by the Full Court as a test case.

The defendants argued that as their daily pay varied, GD had to pay Other Leave at the rate of ADP, even though it was possible and practicable to pay RDP.

The Full Court rejected this argument and held that there was no basis to read “may” as “must”, as the defendants had contended. If it is possible or practicable to calculate RDP, even when an employee’s daily pay varies, then an employer retains a discretion as to whether it pays Other Leave as ADP or RDP.

This was consistent with the purpose of the Act which is to ensure that an employee is paid fairly and is not financially disadvantaged. The Court also noted that an employer might need to change between paying ADP and RDP as employment circumstances change.

It must be noted of course that if an employment agreement contains a more favourable calculation for calculating Other Leave than the Act, then the employment agreement must prevail.

These provisions are tricky and are subject to the review of the Holidays Act Taskforce. Please contact us if you require advice on your specific situation.


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The above article was included in the most recent edition of our quarterly newsletter Employment News. For this and other articles, please click on the following link:  Employment News – Edition 5