Holiday pay calculation in New Zealand, with worked examples

Work out two figures as at the start of the holiday: ordinary weekly pay, and average weekly earnings over the 12 months before the end of the last pay period before the holiday. Pay each week of annual holidays at whichever is greater.

Payroll systems most often go wrong by paying the base rate for the hours taken, without the comparison.

Ordinary weekly pay is what the employee is paid under their agreement for an ordinary working week, including regular overtime and regular incentive payments such as commission, but not one-off or discretionary payments.

If that cannot be worked out, the Act gives a formula: gross earnings for the four weeks before the end of the last pay period, less irregular and one-off payments, divided by four. The Act does not fix a number for “regular”; a common reading is that a payment made in at least half of the pay periods in the last 13 weeks is regular.

Average weekly earnings are one fifty-second of gross earnings for the 12 months before the end of the last pay period before the holiday. Gross earnings include wages, overtime, commission, allowances other than reimbursements, non-discretionary bonuses, and holiday and leave pay. They exclude discretionary payments, reimbursements and employer superannuation contributions.

When annual holidays are taken in advance by someone employed for less than 12 months, divide by the weeks of employment instead of 52.

Relevant daily pay is what the employee would have earned had they worked that day, including the overtime and incentive payments they would have received. It is the starting point for public holidays, sick leave, bereavement leave and alternative holidays.

Average daily pay is gross earnings for the 52 calendar weeks before the end of the last pay period, divided by the number of days the employee worked or was on paid leave in that time.

It may be used only if relevant daily pay cannot practicably be worked out, or the employee’s daily pay varies within the pay period. It is not a default for everyone.

A public holiday is an otherwise working day for an employee if they would have worked that day had it not been a public holiday; any amount of work that day counts. Where the agreement or roster does not make it clear, look at the work pattern, the rosters and what both sides would reasonably expect.

The Holidays Act does not fix a number; a common reading is that a weekday the employee worked, or was on paid leave, in at least half of the 13 weeks before the holiday is an otherwise working day. The Employment Leave Act makes a 50% test law from 2028.

If the employee does not work a public holiday that is an otherwise working day, pay at least relevant daily pay, or average daily pay where that is allowed. If they work it, pay time and a half for the hours worked and, if it was an otherwise working day, give them an alternative holiday as well.

Instead of paid annual holidays, an employer may pay holiday pay of at least 8% of gross earnings with each pay. It is lawful only if the employee is on a fixed-term agreement of less than 12 months, or works so intermittently or irregularly that four weeks of annual holidays is impracticable; the employee has agreed to it in their employment agreement; and it shows as an identifiable part of each pay.

For a genuine casual on pay-as-you-go, pay at least 8% of gross earnings with each pay. The Act does not fix a number for “intermittent or irregular”; a common reading is that someone who works most weeks on the same days is regular, whatever their agreement calls them.

If a regular employee has been on 8% for 12 months or more, they become entitled to four weeks of annual holidays despite those payments.

Add three things to the final pay: untaken entitled annual holidays at the greater of ordinary weekly pay and average weekly earnings; 8% of gross earnings since the last anniversary, less any holiday pay already paid for that period; and pay for any public holiday that falls in the period the untaken leave would have covered.

The 8% base includes the payout for entitled holidays, the step most often missed. The Act does not say outright whether the public holiday pay belongs in that base too; a common reading, and Employment New Zealand’s own examples, include it.

From each employee’s first pay period on or after 6 August 2028, the Employment Leave Act 2026 replaces all four figures with one leave payment rate per hour, and replaces 8% pay-as-you-go with a leave compensation payment of at least 12.5% of the ordinary hourly rate.