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Bonuses must be part of holiday pay calculations, Employment Court rules

The Labour Inspectorate and Metropolitan Glass & Glazing jointly filed a case with the Employment Court after being unable to agree on payments to be included in holiday pay calculations.

Short term incentive payments and bonuses are fairly common among New Zealand businesses and are paid to employees as part of their agreed salary or wages.  

The Labour Inspectorate National Manager Stu Lumsden said the Inspectorate and Metropolitan Glass & Glazing decided to obtain guidance from the Employment Court after not being able to agree on whether bonus payments deemed “discretionary” by the employer needed to be included in the calculation of employees’ holiday pay. 

The Court ruled that these bonus payments did not meet the legal definition of “discretionary” and needed to be included in the calculations for holiday and leave as per the Holidays Act 2003. 

Discretionary payments, according to the law, are payments that the employer is not bound by employment agreement to make. It is important to note the definition of employment agreement is wide and does not just include: letters of offer, addendums, and the employer’s policy documents. 

In this case, the payments were performance-based and had to be paid if an employee met certain conditions. As such, they could not be considered discretionary and were a part of the employees’ gross earnings. 

“What is included in gross earnings for the purposes of calculating holiday and leave payments is one of the main areas employers struggle to comply with the Holidays Act,” says Mr Lumsden. 

“We thank Metropolitan Glass for going to the Employment Court with us to obtain answers to these questions of law. This judgement will help to clarify the rules for all New Zealand businesses. 

“Not including these types of bonuses in the calculation for holidays and leave payments means employees get paid less than they are entitled to by law. 

“We encourage other business to use this case to check their own compliance with the Holidays Act.” 

The Employment Court’s judgement has also clarified the Holidays Act rules around annual closedowns. Employees who have been with their employer for less than 12 months and are not entitled to annual holidays at the start of an annual closedown MUST be paid eight per cent of their gross earnings. Their 12 month period for becoming entitled to annual holidays will then start from the date the closedown begins. 

As well as the eight per cent payment, the employee may agree with their employer that they take some annual holidays in advance for some or all of the closedown period. 

Metro Glass have appealed the decision to the Court of Appeal. 

Improving Holidays Act compliance

Annual closedowns

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