Annual Leave Settings - In-depth Overview

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. 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. 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 guaranteed or minimum hours stated in their IEA or CEA are significantly irreflective of their actual working pattern. This option requires careful consideration and a sound agreement with staff before use, as generally labour inspectors or auditors prefer 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. 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 increases to offset the fact that they do not receive more time off.

The Employment Relations Act 2000 states that employment 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", which means employees would generally already have some form of agreed-to working week to base four weeks off. However, in some industries it is hard to establish a regular working week for inconsistent employment types such as casual employees.

One example is an employee who has agreed to minimum hours of 3 hours per week, but consistently works much more. This means their leave pay rate is high, but they are only receiving the equivalent of a few hours of annual leave each year.

Ideally, employers would regularly review the employee’s working pattern and agree to a new working week with the staff member to reflect this. However, in larger businesses, this becomes harder to manage.

This is where the "Earnings-Related" option can be more effective. The employee receives four weeks based on their actual average weekly earnings. This method can be compliant if supported by an agreement or clause in the IEA or CEA defining a genuine working week as the average over 52 weeks. It’s important to still follow the correct process to ensure OWP and AWE are paid correctly and the setup remains compliant.