Annual Leave Settings - In-depth Overview

Crystal Payroll can handle three different requirements for annual leave. We understand that one size does not fit all, so we have created different means for ensuring your employees receive four weeks of annual leave based on your agreement with them. This guide breaks down each option respectively, so that you know what to choose for your staff, depending on their situation, your industry, and many other factors.

The three solutions Crystal Payroll offers for annual leave are:

  • Week - Restricted Annual Leave - Employees receive four weeks of annual leave based on their agreed standard week, and if their agreed standard updates, their past entitlements update to reflect their new standard. e.g., If an employee has 4 weeks of annual leave owing, and their agreed default hours change from 20 hours a week to 40 hours a week, their annual leave entitlements would double from 80 hours owing to 160 hours owing, so that they still have 4 weeks owing, and not 2 weeks. This is generally coined as "Annual Leave in Weeks" and is considered the most accepted way of compliantly calculating annual leave.

  • Crystal - Default Annual Leave - Employees receive four weeks of annual leave based on their agreed standard week, and if their agreed standard updates, their past entitlements stay the same, but their future entitlements reflect their new working week. e.g., If an employee has 4 weeks of annual leave owing, and their agreed default hours change from 20 hours a week to 40 hours a week, they would keep their entitlement of 80 hours owing from working 12 months, but at their next anniversary would receive 160 hours. This tends to still be the most common choice for calculating annual leave.

  • Earnings - Related Annual Leave - Employees receive four weeks of annual leave based on their gross earnings, as they tend to work such varying hours that their guarenteed or minimum hours stated in their IEA or CEA are significantly irreflective of their actual working pattern. e.g., If an employee works anywhere between 10 hours a week to 45 hours a week, then at their anniversary they would receive exactly what 4 weeks of annual leave means to them based on their average. This option requires careful consideration and a sound agreement with staff before use, as generally labour inspectors or auditors in general like to see a standard working week being used.

    • For the purpose of calculating the actual annual leave payment amounts, regardless of the method, the system will always calculate the Ordinary Weekly Pay and Average Weekly Earnings. The above options purely affect leave accrual and entitlements.

    What should you choose? If you are unsure, always go with the first option, as it means you are essentially calculating annual leave in weeks. This is generally accepted as the most compliant way of handling annual leave despite not being the most popular choice. Otherwise there is a section in each guide below that will inform you of when you might use each option, as well as how to set it up for your staff. Note that you can actually use all three of these options concurrently for different staff, so if one option does not fit one staff member, you could technically use another.

    Week - Restricted Crystal - Default Earnings - Related


    Why are there so many options? The Standard idea of annual leave is that employees receive four weeks of annual leave based on what genuinely constitutes a working week for employees. According to the Holidays Act 2003, this can be agreed to by the employer and employee, and if no agreement can be made, then a labour inspector may step in to help. If an employee earns more than this 'genuine working week', then their leave pay rate goes up to offset the fact that they do not get more time off.

    The Employment Relations Act 2000 states that employement agreements must include "any agreed hours of work ... or, if no hours of work are agreed, an indication of the arrangements relating to the times the employee is to work", means that employees would generally already have some form of an agreed-to working week to receive four weeks based off. However in some industries it is hard to establish a regular working week for inconsistent employment types such as casual employees.

    One example we have seen is where an employee works in the retail industry. In this scenario we were told the employee had agreed to minimum hours of 3 hours per week, but obviously never only worked 3 hours. This meant their leave pay rate was very high, and they were only receiving the equivalent of 12 hours of annual leave per year.

    In this case, the employer in an ideal world would regularly review the employee's working pattern and agree to a new working week with the staff member to reflect this. However assuming this is a large retail business, this becomes more difficult to stay on top of.

    This is where the "Earnings-Related" option works best. There would be no fuss as the employee would receive four weeks based on what exactly represents a week as they accrue specifically based on their earnings. We would argue this method is still compliant, but would require an agreement or clause in the employee's IEA or CEA. This is because you can agree with an employee as to what a 'genuine working week' is, and so if you define it is as an average working week based on 52 weeks' prior to the entitlement and the employee agrees then this method should be valid. However, you must still remember to follow the instructions carefully so that you still pay out the OWP and AWE correctly and stay compliant.