Casual Employees & Conversion

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Last Updated: Wednesday, 26 February 2025 14:20

Casual employees are not specifically defined in the Holidays Act, but payment of holiday pay with an employee's normal pay is covered under section 28 of Act. In KeyPay this only happens when an employee is configured as a "C" type.

There are two situations when this is allowed. Both require it be part of the employment contract and an identifiable component of the employees pay of no less than 8% of the employee gross earnings. (i.e. The holiday pay itself must be shown separately from wages paid.)

  1. Employment is on a fixed term basis under section 66 of the Employment Relations Act and for less than 12 months. This may continue with multiple terms of less than 12 months each.
  2. The work is so intermittent or irregular that it is impractical to apply section 16 and calculate a 4 week entitlement.

We strongly advise that the Casual type only be used for the second situation. For fixed-term employees always make them Full or Part-time for the reasons covered below.

Different requirements apply to each, but both can become complex with compliance difficult to achieve if the employee is ever made permanent.

Fixed-Term

When such an casual employee becomes permanent they become entitled to 4 weeks paid holiday on the anniversary of the beginning of the last fixed-term contract. i.e Now deemed to have been in full-time employment for 12 months as per section 16. The amount to be paid for the 4 weeks leave is reduced by the value of leave already paid as 8% during the fixed term.

Because no time on leave has been associated with the % of gross, it is not correct, or even legal, to deduct this from the 4 weeks, as the employee has not actually had the time off. Also, if employed on the same pay rate, the leave average will initially be 8% greater than the ordinary pay and therefore the (now available) leave must be paid at this higher rate. Unless the employee takes the whole 4 weeks at once, it is hard to remember to subtract and track the reducing leave recovered balance on an ongoing basis, but the employer is allowed to recovery the pre-paid 8%.

If the fixed-term is considerably less than 12 months and permanent employment occurs, conversion to full time in the same fashion as for intermittent employees below is possible but not strictly correct.

For leave recovery, the employee first needs to have his leave YTD earnings and time worked determined from archive reports and the 8% of gross then calculated. The employee type can now be changed to full-time. Values for the leave entitlement, base weekly and daily hours to reflect the now permanent position and the determined YTD leave figures would be entered. Finally the 8% of gross should be entered in the leave (to be) recovered slot. This is not the 8% shown on page 3. It must be calculated as the difference between the gross and the gross divided by 1.08. The leave start and anniversary date should be checked and the anniversary adjusted if needed. This would depend on the timing of the transition from casual in relation to the anniversary. Ideally this should be done prior to the end of the fixed term, but we only need to ensure that leave rollover will now happen. If the anniversary has already occurred while casual, the leave anniversary needs re-adjusting to ensure rollover happens at the next post. i.e The date could have become advanced by a year during the casual fixed-term. These steps have now converted the employee from casual to full-time correctly.

A rate slot for the purposes of recovering the value of the pre-paid 8% of gross must now be setup. Call the new slot Recovered Casual or similar. The important part is that the first seven letters contain the word RECOVER - case does not matter. The multiplier will normally be 1 to recover it at the ordinary pay rate. It is also important that it's set not to count as time worked as the qty is not time taken - only the $ needs to be recovered.

When leave is next taken by entering in the usual way, the amount recovered will be automatically entered in the recovery slot up to the minus value of the leave being taken. Thus leave is correctly taken and paid for, but the value is recovered at that time. If the leave taken value exceeds the recovered amount, the balance is included in the amount paid. At posting the amount recovered in that pay will be deducted from the total due and any balance remaining recovered when leave is next taken. This will continue until the balance forward becomes zero and the full recovery is complete. From this point forward the employee is treated the same as any other permanent employee. If the employee is to be terminated prior to the recovery has finished the balance of the recovery must be included as leave in advance.

If fixed-term employees were just made full time from the beginning all this could have been avoided. At the end of each contracted fixed term they would simply be paid out the 8% of gross, or the value of available leave given at rollover if it occurred. If permanent employment occurs, nothing need be done than to negotiate a new contract.

Intermittent or Irregular Employment

Such employees should be configured as a casual type. The period of employment is also very important. This type of contract is intended for a short duration only, for example, seasonal fruit pickers due to their transient nature, may not be able to be located to pay their accrued money when finally terminated. If employment continues for more than six months, sick leave may also become available depending on the frequency and duration of the pays. KeyPay will attempt to calculate and warn on the leave report when the specified conditions are met.

If such employment continues for 12 months or more, then despite having received the 8% with each pay, the employee becomes entitled to paid annual holidays in accordance with section 16 and the 8% already paid cannot be recovered by the employer.

When generating a leave report, KeyPay will warn a couple of pays prior to any casual employee reaching their anniversary. The employee should then either be made full, part-time or terminated.

Instead of recovery just change the leave start date as follows:

To convert such an employee to full or part-time prior to anniversary, simply change their type and enter values for entitlement, base hours per week and day. Then change their leave start date to the date they became permanently employed. They will then accrue leave from that time and at their anniversary, because it's a part year, will have 4/52 of their time worked since becoming permanent as available leave. If their pay rate is unchanged, the average rate will have fallen in proportion to the time under each type, so to avoid paying at the higher average, giving leave in advance should be avoided.