Holidays, Leave, and Pay in New Zealand – Avoiding Common Mistakes

Leave and pay entitlements are often misunderstood — and mistakes can be costly for employers. For employees, knowing your rights helps ensure you’re treated fairly. This guide outlines key NZ entitlements, how to calculate leave pay correctly, and common errors to avoid.

Key Leave Entitlements (NZ)

Annual Leave

Minimum 4 weeks after 12 months of continuous employment.
Employees may agree to take leave in advance before entitlement accrues.
Untaken entitlement is generally paid out on termination using the correct Holidays Act formula.

Sick Leave

Minimum 10 days per year after 6 months continuous employment (and every 12 months thereafter).
Unused sick leave can usually carry over, typically capped at 20 days.

Public Holidays

12 recognised public holidays.
If an employee works a public holiday: at least time and a half pay, and an alternative holiday if it would otherwise be their working day.
For shift work spanning midnight, apply the “day that would otherwise be a working day” test to the appropriate calendar day.

Parental Leave

Up to 26 weeks paid parental leave (subject to eligibility), with job protection under the Parental Leave and Employment Protection Act.
Consider keeping-in-touch days and pay/benefits impacts in the agreement or policy.

Calculating Leave and Holiday Pay Correctly

To pay annual leave, use the greater of:

Ordinary Weekly Pay (OWP), or
Average Weekly Earnings (AWE) over the last 12 months.

For public holidays, alternative holidays, sick leave, and bereavement leave, pay using Relevant Daily Pay (RDP) or, where RDP isn’t practicable, Average Daily Pay (ADP).

Tip: Document which method you used (OWP/AWE for annual leave; RDP/ADP for daily entitlements) and keep the calculation trail in your payroll system.

Common Mistakes (and How to Fix Them)

Incorrect accruals for part-time/casual staff → Define “otherwise working day” clearly; avoid pro-rating annual entitlement (entitlement is time-based), but do proportion calculations carefully for pay.
Public holiday rules for shift workers → Apply the correct day attribution and provide time and a half + alternative holiday where eligible.
Using outdated payroll settings → Update for changes in sick leave entitlements, parental leave, and public holiday calendars.
Holiday pay on termination miscalculated → Use the proper AWE vs OWP comparison and include gross earnings components correctly.
Not recording agreements for leave in advance → Always confirm in writing and ensure balances are tracked.

FAQs – Holidays, Leave, and Pay in New Zealand

How do I decide if a public holiday is an employee’s “otherwise working day”?

Look at work patterns, employment agreements, rosters, and recent history. If, on balance, the day would normally be worked, it’s an otherwise working day (triggering alternative holiday when worked).

When do I use OWP vs AWE for annual leave?

Always pay the higher of the two. Use OWP if it can be calculated as the employee’s regular weekly pay; otherwise compare with AWE (last 12 months’ gross earnings ÷ 52).

Do variable-hours staff get 4 weeks of annual leave?

Yes, entitlement is time-based (4 weeks after 12 months). Calculating the value of that leave must reflect their actual earnings pattern (AWE vs OWP).

If an employee works a public holiday on a shift that spans midnight, which day gets the benefit?

Attribute entitlements to the calendar day actually worked that meets the otherwise working day test for that employee.

Can we pay “8% as you go” instead of providing annual leave?

Only for genuine casual arrangements that are irregular and intermittent, and only if the employment agreement states it clearly and the 8% is shown separately on payslips.

Best Practices

Review payroll regularly against Holidays Act requirements.
Keep accurate records of hours, days worked, gross earnings, and leave balances.
Train managers and payroll on “otherwise working day”, OWP/AWE, and RDP/ADP.
Seek advice before changing leave policies or restructuring rosters.

McKenzie Law can review your payroll settings, leave calculations, and policies to ensure full compliance — and prevent costly errors.

Contact us today for expert advice.