Global Compliance Desk – New Zealand

New Zealand: Discretionary Payments under Holiday Pay 

On October 26, 2021, the New Zealand Court of Appeal passed a long-awaited decision in Metropolitan Glass & Glazing Limited v Labor Inspector case, wherein the Employment Court erroneously concluded that the discretionary payments made by Metropolitan Glass under its  Short Term Incentive Bonus Scheme (STIB scheme) to employees fell within the definition of “gross earning” under Section 14 of the Holidays Act. 

For the purpose of calculation of an employee’s holiday pay, either the employee’s ordinary weekly pay or average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday (whichever is greater) is taken into account. Here, average weekly earnings mean 1/52 of an employee’s gross earnings.

Under the Holidays Act, “gross earnings”  in relation to an employee for the period during which the earnings are being assessed means all payments the employer is required to make under the employment agreement, including, for example – 

  • salary and wages
  • allowances (but not reimbursing allowances)
  • all overtime
  • piece work
  • at-risk, productivity, or performance payments
  • Commission
  • payment for annual holidays and public holidays
  • payment for sick and bereavement leave
  • the cash value of board and lodgings supplied
  • the first week of compensation payable by the employer
  • any other payments that are required to be made under the terms of the employment agreement.

What is not included in Gross Earnings?

Unless the employment agreement says otherwise, reimbursement payments, ex gratia payments, and discretionary payments (e.g., genuinely discretionary bonuses) are not included in the gross earnings calculations.

Discretionary payment is defined as a payment that the employer is not bound by, under the employee’s employment agreement, to pay.

If an employer is required to make a payment to the employee under the employment agreement, commission scheme, bonus scheme rules, etc, then it is not a discretionary payment and it must be included. This is the case even if the payment amount is discretionary and could even be $0.  

Court’s Finding

The Employment Court stated that incentive payments provided for in Metropolitan Glass’ policies had contractual force and formed part of the definition of “gross earnings” for the purpose of holiday pay calculations. This decision was based on the Employment Court’s finding that the parties had intended the STIB schemes to have contractual force, as the STIB schemes were put in place to incentivize employees to meet key deliverable targets.

The Court of Appeal in its judgment established that the genuine discretionary payments included in contractual documents can be excluded from holiday pay computations. Furthermore, the Court of Appeal stressed that the definition of discretionary payment under Section 14 of the Holidays Act is a payment the employer is not contractually bound to pay. 

In the Metropolitan case, the employer did not just label the scheme discretionary but included an express term that the payment could be denied even if the employee meets their targets. The Court of Appeal found that the payments were not guaranteed or conditional and were discretionary payments for the purposes of the Holidays Act. The payments are not required to be included in the calculation of gross earnings. 


The impact of the Court of Appeal’s decision is significant. However, it should be emphasized that this decision will not be enough to simply label a payment “discretionary”. To fall within the Holidays Act definition of a discretionary payment, the employer will need to preserve the discretion not to make any payment at all whether or not any or all conditions are met by the employee.

The issue of discretionary payments is part of a wider review undertaken by the Government’s Holidays Act Taskforce which shall not be in effect until mid-2023. The Taskforce has made 22 recommendations and the government has accepted the recommendations which would include but shall not be limited to changes in the process of calculation of leave, changes in entitlement & duration of various special leaves.

Shreya Bhattacharya
Shreya Bhattacharya
A labor and employment lawyer at Replicon who specializes in global compliance. Replicon provides award-winning products that make it easy to manage your workforce. Replicon is an industry leader in global compliance and has a dedicated team which pro-actively monitors international labor regulations for ensuring proper adherence with specific country rule requirements.
Get started today.
Set up a free trial based on your business needs. Start Free Trial

A Leading Large IT Enterprise Unleashes Higher Business Benefits and Values With Accelerated One Platform Initiative

This blog is part of the digital transformation journey of a very Large IT Enterprise and their journey to modernizing their time tracking ecosystem. Check out part 1 and part…Read More

Can Automatic Time-tracking Software Be Tricked?

The workplace ecosystem has undergone a dramatic change as technology has steadily spread into offices in the past years. But the pace of change has been blinding of late. One…Read More

Global Compliance Desk – California

California Supreme Court Holds Meal Period Premiums Are Wages The California Supreme Court, on May 23, 2022, in Naranjo v. Spectrum Security Services, Inc., P.3d (2022), issued an important wage-and-hour…Read More

Will AI replace consultants?

The onset of AI and smart machines automating formerly-human jobs has been discussed at length as of late -- often in relation to manufacturing and manual labor jobs. And yet,…Read More

Demystifying the millennial workforce: 5 tips from Trunk Club’s Andrew Anderson Devine

Time magazine labels the millennial generation the “most threatening and exciting generation,” infamous for “narcissism [and] its effect: entitlement.” In the workplace, the perception of the millennial workforce is no…Read More

Time and Attendance Orientation Guide

In a growing business, the day will eventually come when managing time and attendance on paper becomes both inefficient and risky, especially when trying to balance things like overtime, paid…Read More
  • Polaris
  • Time & Project Insights
  • Time & Projects Solutions
  • Replicon Products
  • Replicon Users
  • Enterprise Time Tracking
  • Thought Leadership
  • Cloud
  • Corporate
  • Professional Services Management
  • Shared Services Management
  • Time and Attendance Management
  • Customer Feature
  • Time Intelligence
  • Industry News
  • Global Compliance Updates
  • Others