Leave and the Holidays Act: New Zealand's hardest payroll problem

Four weeks — in weeks, and that is the point

Section 16(1) of the Holidays Act 2003 sets the entitlement: “After the end of each completed 12 months of continuous employment, an employee is entitled to not less than 4 weeks’ paid annual holidays.” Employment New Zealand's guidance confirms the plain reading: all employees become entitled to 4 weeks of annual holidays (annual leave) after 12 months of continuous employment.

Notice the unit. The Act does not say 20 days or 160 hours — it says weeks, and a week means whatever a working week genuinely looks like for that employee. For a Monday-to-Friday, 40-hour employee, that is easy. For everyone else, it is the first place NZ payroll goes wrong: an employee whose hours grew from 20 to 40 per week is entitled to four weeks at the size their week now is, not at the size it was when the leave accrued in a hours-based ledger.

For variable-hours staff, Employment New Zealand says the parties should work it out together: “you and your employer should try to identify if there is a pattern of work that could be used to calculate a working week for annual holiday entitlement. This must be a fair and reasonable reflection of your working week and agreed to by both parties” — and whatever is agreed “should be used consistently.”

Two calculations, and you must pay the greater

Section 21(2) makes annual holiday pay “at a rate that is based on the greater of — (i) the employee’s ordinary weekly pay as at the beginning of the annual holiday; or (ii) the employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.” Every annual holiday, for every employee, is a two-horse race — and the employee always gets the winner.

Ordinary weekly pay (OWP) is defined in section 8: the amount of pay the employee receives under their employment agreement for an ordinary working week. It includes productivity or incentive-based payments (including commission) if they are a regular part of pay, payments for overtime if they are a regular part of pay, and the cash value of board or lodgings — and excludes irregular productivity or overtime payments, one-off or exceptional payments, truly discretionary payments, and employer superannuation contributions. Where OWP cannot be determined that way, section 8(2) supplies a fallback formula:

• OWP = (a − b) ÷ c, where a is gross earnings for the 4 calendar weeks before the end of the last pay period, b is the total of the irregular and one-off payments excluded above, and c is 4.

Average weekly earnings (AWE) is mechanically simpler — the Act's interpretation section defines it as “1/52 of an employee’s gross earnings”, taken over the 12 months immediately before the end of the last pay period before the holiday. Simple, but wide: it sweeps in overtime, commission and most other taxable earnings across the whole year, which is exactly why it often beats OWP for anyone whose pay moved during the year.

Public holidays: twelve days, two transfer rules, one test

Section 44(1) lists the public holidays: Christmas Day, Boxing Day, New Year's Day, 2 January, Waitangi Day, Good Friday, Easter Monday, ANZAC Day, the birthday of the reigning Sovereign (observed on the first Monday in June), Matariki (Te Rā Aro ki a Matariki, the date set each year under Te Kāhui o Matariki Public Holiday Act 2022), Labour Day (the fourth Monday in October) — plus the day of the anniversary of a province or the day locally observed as that day. Twelve days in all, and Employment New Zealand confirms public holidays are in addition to the 4 weeks of annual holidays.

Whether a given employee gets anything for a given holiday turns on the otherwise working day test: would the employee have worked that day had it not been a public holiday? If yes and they do not work, they are paid for the day; if no, the holiday passes them by. Employment New Zealand's definition: a day the employee would have been working “had the day not been a public holiday, sick leave, bereavement leave, family violence leave, annual holiday or an alternative holiday.”

Then come the transfer rules — Mondayisation. For the Christmas and New Year block, section 45: if the holiday falls on a Saturday or Sunday that is not an otherwise working day for the employee, it is treated as falling on the following Monday (or Tuesday); if the weekend day is an otherwise working day for them, the holiday stays put. Section 45A (in force since 1 January 2014) applies the same logic to Waitangi Day and ANZAC Day, transferring both to the following Monday. Either way, no employee gets the same holiday twice — the Act says so explicitly.

Working the public holiday: time and a half, plus a day

If an employee works on a public holiday, section 50 requires at least time and a half — the greater of: (a) the portion of the employee's relevant daily pay or average daily pay (less any penal rates) that relates to the time actually worked, plus half that amount again; or (b) the portion of relevant daily pay for the time actually worked including any penal rates in the employment agreement. Another greater-of comparison, nested inside the day.

And if the day was an otherwise working day for the employee, section 56 adds a second entitlement on top: a whole alternative holiday (a “day in lieu”) — regardless of how few hours were worked on the public holiday. Employment New Zealand notes the one carve-out: employees do not get an alternative holiday if they are employed to work only on public holidays. The alternative holiday is paid, when taken, at relevant or average daily pay for the day it is taken (section 60), not for the hours worked on the original holiday. It never expires; once 12 months have passed, employee and employer can agree to exchange it for an agreed payment (section 61); and unused alternative holidays are paid out on termination.

Sick, bereavement and family violence leave — and the two daily rates

The day-based entitlements share an eligibility gate: 6 months' current continuous employment, or — for employees whose service is patchier — 6 months during which they averaged at least 10 hours a week, with no less than 1 hour in every week or 40 hours in every month.

• Sick leave: “An employee is entitled to 10 days’ sick leave” per 12-month period (section 65(2), raised from 5 by the Holidays (Increasing Sick Leave) Amendment Act 2021) — usable when the employee, their spouse or partner, or a person who depends on them is sick or injured. Unused days carry over, up to 10 days carried and a maximum of 20 days’ current entitlement (section 66). Proof: the employer can ask, but if it asks within the first 3 calendar days it must meet the cost of the medical certificate; from 3 consecutive calendar days the employee provides proof at their own cost.
• Bereavement leave: 3 days per bereavement on the death of an immediate family member — parent, child, partner or spouse, grandparent, grandchild, brother, sister, parent-in-law — and 3 days for a miscarriage or stillbirth (covering the employee, their partner or former partner, or an intended primary carer), plus 1 day for another person's death where the employer accepts a bereavement having regard to closeness, funeral responsibilities and cultural obligations (sections 69–70). Multiple bereavements at once each carry their own entitlement, and the days need not be consecutive.
• Family violence leave: up to 10 days per 12-month period (section 72H) where the employee, or a child living with them, has experienced family violence — alongside a right to request short-term flexible working. Unused days do not carry forward.

All three are paid, for each otherwise working day taken, at relevant daily pay (RDP) — the amount the employee would have earned had they worked that day, including incentive payments, overtime, regular taxable allowances and the cash value of board or lodgings. Where RDP is not possible or practicable to determine, or the employee's daily pay varies within the pay period, section 9A allows average daily pay (ADP) instead:

• ADP = a ÷ b, where a is gross earnings for the 52 calendar weeks before the end of the last pay period, and b is the number of whole or part days on which those earnings were earned — including paid leave days, excluding other days not actually worked.

So a full Holidays Act implementation carries four pay rates: OWP and AWE for the weekly world of annual holidays, RDP and ADP for the daily world of everything else — each with its own inclusion rules, look-back window and trigger conditions.

The 8% rails: pay-as-you-go, cash-ups and closedowns

Three narrow mechanisms round out the system, and each is narrower than employers tend to assume:

• Pay-as-you-go (8%). Section 28 lets an employer pay annual holiday pay with each pay only where the employee is on a fixed-term agreement of less than 12 months, or works on a basis “so intermittent or irregular that it is impracticable” to provide 4 weeks of holidays — and then only if the employee agrees in the employment agreement, the amount is an identifiable component of pay, and the rate is not less than 8% of gross earnings. Rolling 8% into the hourly rate of an ordinary permanent employee does not extinguish the 4-week entitlement; it just funds it twice.
• Cashing up. Under section 28A an employee may ask — in writing, on one or more occasions — to have annual holidays paid out, up to a maximum of 1 week per entitlement year. The request must come from the employee (an employer cannot require it), the employer must respond in writing within a reasonable time, may decline without giving a reason, and the payment must be at least what the holiday would have been worth as annual holiday pay.
• Closedowns. An employer that customarily shuts (fully or by section) can run one closedown per 12-month period on at least 14 days' notice, requiring entitled employees to take annual holidays. Employees not yet entitled are paid 8% of gross earnings since they started (or since their last entitlement arose), less any advance holidays or pay-as-you-go amounts (section 34) — and their entitlement anniversary resets to the closedown date.

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