There are two ways to specify how annual leave will be accrued in FlexiTime using the *Accrue Leave Based On* fields on the Leave tab when editing an employee.

- By specifying an employee has a
*Normal Hours per Week*, FlexiTime will evenly accrue annual leave so that the employee received 4 x their normal hours as leave after a year (or more if they receive more than 4 weeks' leave). So an employee with*Normal Hours per Week*of 40 will accrue 3.08 hours annual leave per week, regardless of how many hours they are actually paid for. - By selecting
*Hours Worked*, the annual leave accrues at a rate of 4/52 of the hours worked. It is recommended to use this approach when an employee's hours vary and there are no standard hours specified in their contract.

As well as determining the annual leave accrued, the *Normal Hours per Week* is also used in the calculations of average and ordinary rates. Where normal hours are specified, these are what the employee's earnings will be divided by to determine the rate.

For salaried employees this calculation is simple - their normal hours typically matches the hours they are paid, so their average rate will always match their standard rate.

The average rate calculations are also straightforward for employees with *Hours Worked* selected, where the earnings are divided by the hours paid. The average rate will typically be the same as their standard rate, only increasing if they are paid higher rates for overtime or holidays worked.

The calculations for waged employees with non-zero normal hours per week can result in more variation in average rates.

Consider three waged employees, each has worked 30 hours in their first week, paid at $20 / hour = $600. Employee A has *Normal Hours per Week* set to 20, employee B has *Normal Hours per Week* set to 40 and employee C is accruing based on *Hours Worked*.

Employee A will accrue 1.54 hours of annual leave (based on a 20 hour week), and employee B will accrue 3.08 hours per week (based on 40 hours). That seems a little unfair on employee A when they both worked the same hours. However, this is compensated for by the average rate calculation.

The average rate for that one week for employee A is $600 / 20 = $30 / hour. The average rate for employee B is $600 / 40 = $15. If the annual leave accrued is paid out at these rates, the totals are the same (1.54 x $30 = 3.08 x $15 = $46.20).

Note however that the standard rate for employee B is higher than their average rate and this would typically be what is used when leave is paid out. So you should avoid having normal hours per week set to a value higher than the hours employees are actually paid for.

Employee C is a simple scenario where they will accrue 30 x 4 / 52 hours = 2.31. Their leave will get paid out at their standard rate.

In general, if employees hours are varying greatly it's simpler to select Hours Worked. In this example, both employees would accrue 2.3 hours at an average rate of $20.

The Leave History Report shows the effects of each pay on an employee's Annual Leave Accrued.

If the employee is paid on a piecemeal basis, then please see this article: Piecemeal Rates and Annual Leave

#### Not a FlexiTime customer?

FlexiTime is flexible payroll software for New Zealand businesses. FlexiTime makes it easy to pay your employees accurately with great online timesheets, leave management and automated public holiday calculations.

Try it free for 30 days
## Comments