Forum Discussion

SRK's avatar
SRK
Trusted User
6 years ago

Annual Leave, Holiday Pay and Unpaid leave for three months...

Hi All

 

We have a long term employee going on three months leave.

 

He has some annual leave hours, some holiday pay and will take the balance as unpaid leave.

 

He has different hourly rates and just completed a contract where his hourly rate was significantly higher than his standard rate.  We agreed to this specifically for this project and he agreed.  His standard hours are 24 per week but he can work extra.

 

His annual leave hours are defaulting to an hourly rate in between the standard and special contract rate.  I think that is correct.

 

He wants to be paid a mix of annual leave and unpaid leave each week until he returns (he will also get stat days).  My other options are to pay him all outstanding leave (plus two stat days) up front, or to pay annual leave hours until zero (or close enough) and then unpaid leave. 

 

Is there a recommended approach?  Will they all cost us the same?  I think the answer is yes.

 

I am prepared to accommodate him as long as it is cost neutral.

 

I also think he may come back as a contractor which to be honest suits the employment relationship better.

 

Thanks in advance

 

  • jenniek's avatar
    jenniek
    6 years ago

    Hi SRK

    The only advantage spreading a mixture of paid an unpaid leave is the tax implications - there might be a slight reduction in tax if you didn't pay the full hours per week. As he is continuing to be an employee, he would still accrue annual leave while he is being paid, but if you process unpaid leave in full weeks, the divisor would be reduced calculate the annual leave rate over a lesser number of weeks.

  • jenniek's avatar
    jenniek
    Ultimate Partner
    6 years ago

    Hi SRK

    When you say he is coming back as a contractor - then effectively he is leaving? Then you should do a final pay for him as at his leaving date - pay his remaining annual leave and Hol Pay. If that period of annual leave (in time) covers some public holidays coming up then you would need to pay these as well. Then time wise the rest will be on his own time. Because of the tax implications (you would tax a final pay at secondary tax) - you may agree with your employee to continue employing him until all his leave has run out (covering any public holidays that fall due) then the unpaid leave time would be again on his own time. The 2nd scenario would be taxed per week that it covered and paid out at each payrun. His leaving date would then be the date the leave covers up to. Then when he comes back as a contractor he is either a new employee with a new start date on a different contract - and may attract 20% WT (withholding tax) - or if he is GST registered he may just give you an invoice each time for payment.

    • SRK's avatar
      SRK
      Trusted User
      6 years ago

      Thanks Jenni - I was perhaps a bit misleading - the employee is taking a mix of paid and unpaid leave and coming back as an employee.   

       

      I just wanted to clarify if spreading out the annual leave for almost three months (and mixing it with unpaid leave) has any advantage or disadvantage for the employer and the employee.  Otherwise I can pay the paid leave (and there will be two stat days) until that runs out and then unpaid leave until the return.

       

      It is possible the employee will come back as a contractor as in some ways that may suit both parties better.  

      • jenniek's avatar
        jenniek
        Ultimate Partner
        6 years ago

        Hi SRK

        The only advantage spreading a mixture of paid an unpaid leave is the tax implications - there might be a slight reduction in tax if you didn't pay the full hours per week. As he is continuing to be an employee, he would still accrue annual leave while he is being paid, but if you process unpaid leave in full weeks, the divisor would be reduced calculate the annual leave rate over a lesser number of weeks.

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