The holiday season is upon us, but it is certainly not a holiday for many businesses that are ramping up to cope with demands of Christmas and summer – including taking on casual staff.
Staff employed on a casual agreement are an important resource in the economy driven by industries such as tourism and forestry with seasonal workflows. However, it’s important to understand the tax and employment law implications of hiring ‘casuals.’
While employment legislation does not define what a casual worker is, generally it is someone who works when required and has an irregular work pattern.
Casual employees have the same employment rights and entitlements as full-time workers so employers need to ensure that a current employment agreement is in place. It also means casual workers are entitled to holiday pay.
If you take on a casual employee you may be able to pay out their annual leave on a pay-as-you-go basis, paying 8% of their gross earnings on top of their wages. But watch that you don’t confuse part-time employees with casual employees. Often employees who are described as ‘casual’ are in fact part-time employees as they have an established regular employment pattern, so are entitled to four weeks annual holidays.
Where there is not a clear work pattern, i.e. work is irregular or intermittent, generally, these are casual employees. When the employment relationship ends for a casual worker, no additional pay is due to them for annual holidays because it has been paid out with their normal pay.
When taking on a casual worker there are a few things you must do:
Agree with employee that each pay will include at least 8% of their gross earnings as holiday pay.
Include the pay-as-you-go arrangement in their employment agreement.
Clearly show the 8% holiday pay as a separate amount on their payslip – making it clear what it represents.
If casual employment is ongoing be sure to review for any ‘regular cycle’ change. If a regular cycle of work has developed a new employment agreement needs to be signed as the employee is entitled to four weeks annual holiday.
If you do not agree to stop the pay-as-you-go when a regular work pattern is established you may still be required to give your employee their annual leave entitlement even if the 8% has been paid.
Also ensure that even if your new employees are only working for you for a short time, a Tax code declaration (IR330) form is completed, and that you show the start and/or finish date for each employee on the relevant Employer monthly schedule (IR 348).
Contact the team at BDO for more information.