We often get queries from Employers about this topic. If you don’t get this right, you could end up paying holiday pay twice.
‘Pay as you go’
You have the ability to pay a causal Employee (and a fixed term Employee who has been working for you for less than 12 months) holiday pay as part of their usual pay. It should be noted as a separate amount on their pay slip and should equate to 8% of that pay period’s gross wage.This means that this type of Employee does not accrue leave to be taken at a different time.
You can only pay holiday pay as-you-go where the Employee meets the criteria which is where the Employee is:
- On a fixed term agreement for 12 months or less; or
- A casual Employee, where their work is so irregular or sporadic that it is impracticable for them to accrue leave; and
- On an agreement that sets out the terms of their employment that this is how they will be paid their holiday pay; and
- The holiday pay is identifiable as separate part of the Employee’s pay; and
- It should be not less than 8% of the employee’s gross earnings.
Where it doesn’t work
But there is a clause in the Holidays Act that can cause Employers some concern.
Section 28(4) of the Holidays Act notes that an Employer has incorrectly paid holiday pay with an employee’s pay where:
- the terms of the Employee’s employment do not meet the criteria above; and
- the Employee’s employment has continued for 12 months or more.
This means that despite having paid the employee their 8% holiday pay with their wages for the last year, the employee becomes entitled to accrue annual holidays, as if the Employer has never paid them at all.
How casual can change into permanent
This is really important when it comes to a casual Employee. Where the work that the casual Employee does changes over the course of time, and they develop a pattern of working – for example every second Tuesday from 8 till 3 – this creates an expectation of work for both parties – you will expect that Employee to be free to work every second Tuesday and that Employee will expect work every second Tuesday.
This person is no longer a casual employee. They are now a permanent part time employee. The agreement that was signed to cover their work as a casual Employee, is now largely irrelevant, as it is the true nature of the employment relationship that will determine whether an employee is a casual Employee or a permanent part-time Employee.
Should you have any queries in relation to this please do not hesitate to get in contact with our Employment team.