It is well known that employers can pay genuinely casual employees their holiday pay on a ‘pay as you go’ basis. These payments must be paid at a rate not less than 8% of the employee’s gross earnings. However, pursuant to section 28 of the Holidays Act 2003 (Holidays Act), this arrangement can only be implemented in certain circumstances.
If the relevant circumstances do not apply, the Holidays Act states that an employee remains entitled to their full accrued annual holiday entitlement, despite any ‘pay as you go’ payments already made.
In the recent Employment Relations Authority determination of Gera v Platform 4 Group, the employer paid holiday pay on a ‘pay as you go basis’ without the necessary circumstances to do so.[1] As such, they were ordered to pay Mr Gera’s full accrued annual holiday entitlement. While the employer argued this meant it was essentially paying Mr Gera’s holiday pay twice, the Authority said this consequence was a cautionary tale to employers of failing to comply with ‘pay as you go’ requirements.
In what circumstances can you ‘pay as you go’?
- Intermittent or irregular employment
Firstly, the employee must work so intermittently or irregularly that it is impractical for the employer to provide them with 4 weeks’ annual holidays.
Employers should not assume that just because an employee is engaged on a casual agreement, their holiday pay can be paid on a ‘pay as you go’ basis. In Cross v D Bell Distributors, Mr Cross was paid his holiday pay fortnightly as 8% of his gross earnings.[2] However, because he worked regular hours on a continuous basis, the Authority ordered his employer to pay out his full accrued annual holiday entitlement of $8,229.66 – i.e. on top of the ‘pay as you go’ payments he had already received.
While employees on fixed-term agreements of less than 12 months can also be paid holiday pay on a ‘pay as you go’ basis, this is the subject for a different article.
- Employment agreement
The second requirement is that the employee has agreed to the ‘pay as you go’ arrangement in their employment agreement. In Gera, the employer’s failure to provide Mr Gera with an employment agreement meant he was entitled to duplicate holiday pay of $692.28.
- Identifiable component of pay
Thirdly, the annual holiday pay must be paid as an identifiable (separate) component of the employee’s pay. This means that the employee’s wages, time, holiday and leave records must record this arrangement. It is best practice to also record this arrangement on the employee’s payslips.
What if the employer genuinely didn’t know about these requirements?
In Cross, the Authority said that ignorance of the Holidays Act is not a sufficient defence and the employer had to be deemed to know the law.[3]
What else could the employer be liable for?
In addition to paying out the employee’s accrued annual holiday entitlement, employers who breach section 28 of the Holidays Act are also liable to a penalty. In Cross, the Authority awarded a penalty of $3,000 against the employer.[4]
In Leonard v Fastway Global Ltd, an employer in breach of section 28 was also ordered to pay KiwiSaver and interest on holiday pay owing.[5]
What should employers do?
In light of the awards in these cases, it is crucial employers ensure compliance with the above requirements. In particular, employers should monitor work patterns of employees who were engaged on a casual basis. If these employees’ work patterns become regular and predictable, employers should consult with them to transfer them to permanent agreements with annual leave accruing and taken as paid time off.
Obligations under the Holidays Act can be complex and, when breached, costly. We frequently advise on Holidays Act obligations and entitlements, so please contact us if you require assistance.
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[1] Gera v Platform 4 Group Ltd [2022] NZERA 269.
[2] Cross v D Bell Distributors Ltd [2017] NZERA 295.
[3] Cross v D Bell Distributors Ltd [2017] NZERA 295 at [46].
[4] Cross v D Bell Distributors Ltd [2017] NZERA 295 at [51].
[5] Leonard v Fastway Global Ltd [2020] NZERA 151 at [95] and [99].
