Calculating holiday pay


16th December, 2022

Calculating holiday pay — a checklist

The Christmas holidays are rapidly approaching and for a lot of businesses that means getting payroll in order before the break.

It’s often a scramble to the finish line at the end of year, so it can be easy to overlook your payroll requirements. But MYOB can help make this as painless as possible for you, letting you switch your automated out of office message on for a couple of weeks, safe in the knowledge everything is covered.

To make things easier for you, we’ve put together a handy guide and checklist of the essential steps you need to take in the next couple of weeks.

Annual leave

If you’re an employer who usually shuts down for the Christmas/New Year period and you require employees to take annual leave (or take unpaid time off), this is known as an “annual closedown”.

You can ask your employees to take annual holidays during the closedown, provided you give them 14 days’ notice. Depending on an employee’s duration of employment, there are different rules that apply.

If the employee has been employed for less than one year, or they’re not yet entitled to annual holidays at the time of the closedown, you must pay them eight percent of their gross earnings (less any amount already paid as eight percent  pay as you go or already taken as annual holidays in advance) as at the closedown date.

If they’ve been in your employ for more than 12 months, process the employee’s leave as normal. If they have no leave available, or not enough to cover the shutdown period, you can agree with them to use leave in advance or leave without pay.

There are also more complex annual leave entitlement calculations that can cause some confusion. For example, average weekly pay is worked out over the past 52 weeks earned, rather than a percentage or hourly rate. For employees who have variable hours this could also fluctuate as it will be the greater of their “Ordinary Weekly Pay” or “Average weekly Pay”.

MYOB Business can help you with these calculations.

Public holidays

When it comes to public holidays that occur during a closedown period, there are detailed rules for paying employees.

If a business has a closedown period that includes the Christmas and New Year public holidays, then employees are entitled to a paid public holiday if they would have normally worked on those days if the closedown wasn’t in effect.

If an employee agrees to work on a public holiday, they must be paid at least time and a half. Additionally, if a public holiday happens to fall on a weekend and the employee doesn’t normally work weekends, the public holiday is moved to the following Monday.

Pay runs

If you’ve set up leave for your employees, you can pay them leave when you do a pay run.

There are six different types of holiday and leave pay you can include in an employee’s pay:

  • Annual leave — pay your employee’s holiday pay.
  • Sick leave — pay your employee for days not worked due to illness.
  • Alternative holiday — pay your employee for a day off that they’ve taken in exchange for working on a public holiday.
  • Public holiday — pay your employee for a public holiday they didn’t work.
  • Public holiday worked — pay your employee for working on a public holiday.
  • Final pay — pay all owed entitlements to an employee who is leaving your employment. Learn more about processing a final pay.

When you pay leave, the Normal hours amount is used for annual leave calculations. The days being paid this period amount is used for bereavement leave, alternative holidays, public holidays, public holidays worked and sick leave calculations. The days being paid this period includes all days being paid, including normal days worked and any paid leave taken.

Ready to get started? Download our FREE checklist for calculating holiday payroll and leave entitlements today.