On an employee’s resignation or termination
The Act provides two ways to calculate payment for annual holidays on resignation or termination. These are:
- where the employment ends within 12 months (that is, before the employee is entitled to annual holidays)
- where the employment ends after 12 months (that is, where an entitlement to take annual holidays has arisen for the first and any subsequent year’s employment).
Where an employee resigns or employment ends before they have completed their first 12 months of service, they are entitled to a payment for annual holidays of 8% of gross earnings during the employment. This entitlement is reduced by any payment for annual holidays taken in advance during the employment or by any payment for annual holidays on a pay-as-you-go basis.
Where an employee resigns or employment ends after becoming entitled to annual holidays, the first amount to be calculated is the greater of ordinary weekly pay or average weekly earnings for the annual holidays to which the employee is entitled under the Act, as if the holidays were being taken at the end of the employment.
If the employee’s rate of ordinary weekly pay at the time is not clear, the calculation in the “Definitions” box earlier is used to establish the correct figure. The 12 months prior to leaving are used to establish average weekly earnings.
The second amount to be calculated is annual holiday pay for the period since the employee last became entitled to holidays, which is calculated at 8% of gross earnings since the entitlement last arose.
The payment for any annual holidays taken in advance is deducted from the final amount, as is any amount paid on a pay-as-you-go basis.
Example: Calculation of final payment for annual holidays
Ted has been employed for 1 year and 1 month. He leaves his employment on 12 May, and the last date he became entitled to annual holidays was 12 April. Ted has already used one week of annual holiday so has three weeks remaining at the end of his employment. Ted also has two alternative holidays from working on public holidays that are left untaken at the end of his employment. Ted is entitled to:
- Payment for the two alternative holidays
- Payment for the three weeks of annual holiday remaining of his four week entitlement from 12 April at the greater of average weekly earnings or ordinary weekly pay
- Payment at 8% of gross earnings for the one month period between 12 April and 12 May. The gross earnings for the 8% calculation also include the holiday pay paid to Ted for his three weeks of unused holiday and the value of the two alternative holidays.
Unless agreed otherwise, the employer must pay outstanding holiday pay in the payday that relates to the employee’s final period of employment. This is normally what would have been the next scheduled payday had the employment not ended.