Gross Earnings is used in a number of different situations to calculate payment for holidays and other leave.
When to use gross earnings in holiday and leave calculations
Gross earnings is used to calculate:
- ordinary weekly pay for determining payment for annual holidays (when the ordinary weekly pay formula is used)
- average weekly earnings for determining payment for annual holidays
- average daily pay (when this can be used instead of relevant daily pay) for calculating payment for public holidays, sick and bereavement leave and alternative holidays
- payment for annual holidays if the employee meets the criteria for being paid on an 8% pay-as-you-go basis.
- the 8% of gross earnings component in an employee’s final pay.
What gross earning means
For the purposes of calculating payments for holidays and leave, gross earnings means all payments that the employer is required to pay to the employee under the employee’s employment agreement for the period during which the earnings are being assessed. If all of the components of gross earnings are not included in the relevant calculations for holidays and leave, the employee will likely be underpaid and the employer will not comply with the Holidays Act 2003.
What ’employment agreement’ means
Gross earnings includes (but is not limited to):
- salary and wages
- allowances (but not reimbursing allowances)
- all overtime
- piece rates
- productivity or performance payments, eg most commissions, bonuses and incentives
- payment for annual holidays and public holidays
- payment for sick and bereavement leave
- the cash value of board and lodgings supplied
- the first week of compensation payable by the employer under s98 of the Accident Compensation Act 2001
- any other payments that are required to be made under the terms of the employment agreement.
Gross earnings don’t generally include:
- any weekly compensation payable under the Accident Compensation Act 2001 that the employer doesn’t have to make
- payment for leave from work when an employee is on volunteers leave for military service
- payment for annual holidays that have been paid out instead of taken (ie up to one week per entitlement year)
- any payments that the employer is not bound, by the terms of the employee’s employment agreement, to pay the employee. These payments will be truly discretionary, and will be relatively rare.
- redundancy payments
- If an employment agreement states that a payment is included in gross earnings, then it must be included even if that type of payment would not usually be included.
- If it is unclear whether a payment should be included in gross earnings, it is recommended that employers err on the side of caution and include the payment or obtain legal advice before making a decision to exclude the payment. For example, whether employee share benefits are included in gross earnings will depend on their specific nature.