In New Zealand, you are entitled to four weeks of paid annual leave after 12 months of continuous employment with the same employer, as set out in the Holidays Act 2003. This guide explains your entitlement, how leave accrues, how pay is calculated, and the rules for cashing it out.
What is the Annual Leave Entitlement in New Zealand?
Under the Holidays Act 2003, employees who have completed 12 months of continuous work for the same employer are entitled to a minimum of four weeks of paid annual leave. This is a core legal right for most workers.
'Continuous employment' generally means working for the same employer without a significant break. This includes full-time, part-time, and fixed-term employees.
For employees with genuinely intermittent or short-term employment, such as some casual workers, holiday pay may be paid out as an extra 8% of their gross earnings with each pay. This 'pay as you go' arrangement requires a written agreement and applies where it is impracticable for the employer to provide four weeks' annual leave, as per section 28 of the Holidays Act 2003.
How Does Annual Leave Accrue?
Annual leave starts accruing from your first day of work. While it builds up over time, you can generally only take it after completing 12 months of continuous service.
For employees with irregular hours or those on specific 'pay as you go' holiday pay agreements, holiday pay is often calculated at 8% of their gross earnings. This amount is tracked until the 12-month anniversary, or paid out if agreed, becoming available as paid time off.
If your employment ends, your employer must pay you for any annual leave you have accrued but not taken. This final payment is your holiday pay.
How is Annual Holiday Pay Calculated?
When you take annual leave, you must be paid your 'ordinary weekly pay' or 'average weekly earnings', whichever is higher, for the period of leave. The Holidays Act 2003 provides specific calculation methods for this.
Ordinary Weekly Pay
Ordinary Weekly Pay (OWP) is the amount an employee would normally earn for a week's work at the time the leave is taken. It includes regular allowances and productivity payments.
Average Weekly Earnings
Average Weekly Earnings (AWE) are calculated by dividing your total gross earnings over the last 12 months by 52. This method is used when it results in a higher payment than Ordinary Weekly Pay, or when Ordinary Weekly Pay cannot be determined.
The 8% Rule
The 8% rule is a method for calculating holiday pay for employees whose employment is genuinely intermittent or for short-term fixed-term agreements, where it is impracticable to provide four weeks' annual leave. In such cases, holiday pay is paid out as 8% of gross earnings with each pay, provided there is a written agreement.
To assist with these calculations and understand your specific situation, you can use our Annual Leave and Holiday Pay Calculator (Holidays Act 2003).
Can You Cash Out Annual Leave in NZ?
Yes, you can cash out up to one week of your annual leave entitlement each year, but strict rules apply. Cashing out means you receive payment for the leave instead of taking time off.
The legal conditions are:
- You must have at least four weeks of annual leave remaining after cashing out.
- You and your employer must agree in writing.
- The agreement must be voluntary and not a condition of employment.
The payment for cashed-out leave is taxed as regular income. For an estimate of the tax implications, you can use the New Zealand PAYE Calculator.
Taking and Managing Your Annual Leave
Employers are generally required to ensure employees take their annual leave. Employers can also require employees to take leave, typically by giving at least 14 days' notice.
You can agree with your employer to take leave in advance of accruing it. Any leave taken in advance that hasn't been earned yet may need to be repaid if you leave the job.
Unused annual leave carries over from year to year. When your employment ends, your employer must pay out all your accrued, untaken annual leave in your final pay.
Common Annual Leave Scenarios and Issues
Variable Hours and Pay
For employees with variable hours, the 'average weekly earnings' method is typically used to calculate holiday pay to ensure fair compensation. This accounts for fluctuations in weekly income over the preceding year.
Public Holidays and Sick Leave During Leave
If a public holiday falls during your annual leave, you are entitled to an alternative holiday (also known as a 'day in lieu'). If you become sick while on annual leave, you may be able to convert your annual leave to sick leave, subject to your employer's policy and medical evidence.
Resolving Disputes
Disputes about leave entitlement or pay should first be raised directly with your employer. If unresolved, you can contact Employment New Zealand for advice or seek mediation services. Your employment agreement may also outline internal dispute resolution procedures.
Annual Leave vs. Alternative Holidays
Annual leave is your four weeks of paid holiday. An alternative holiday is an extra paid day off you get for working on a public holiday. They are separate entitlements.
Next Steps
To ensure you understand your specific leave terms, always refer to your individual employment agreement. For practical assistance with calculating potential holiday pay or understanding leave accrual, utilise the Annual Leave and Holiday Pay Calculator (Holidays Act 2003).
