Holiday pay basics: annual leave, public holidays and the money behind them

Holiday pay is where New Zealand employment law and small business cash flow meet, sometimes uncomfortably. The rules are detailed, the calculations can be tricky for staff with variable hours, and accrued leave is a liability that grows quietly until someone takes a long holiday or resigns. This page covers the money side; for anything unusual, Employment New Zealand’s guidance and a payroll specialist are the places to go.

What are employees entitled to?

Entitlement	The basics
Annual holidays	Four weeks’ paid annual holidays after 12 months of continuous employment
Public holidays	11 national public holidays plus the regional anniversary day; paid if the day is otherwise a working day
Sick leave	10 days of paid sick leave a year for eligible employees
Pay-as-you-go holiday pay	At least 8% of gross earnings, only in limited situations

The 11 national public holidays are New Year’s Day, the day after New Year’s Day, Waitangi Day, Good Friday, Easter Monday, Anzac Day, King’s Birthday, Matariki, Labour Day, Christmas Day and Boxing Day. Each region also has an anniversary day.

How is annual holiday pay calculated?

Employment New Zealand’s rule: pay the greater of the employee’s ordinary weekly pay at the start of the holiday, or their average weekly earnings over the 12 months immediately before the end of the last pay period before the holiday.

For a salaried employee on a steady wage, the two are usually close. For someone whose hours, overtime or commissions vary, average weekly earnings can be higher than their ordinary weekly pay, and that’s the figure you must use. Payroll software should do this automatically; it’s worth checking it’s configured correctly, because holiday pay errors tend to surface years later as back-pay owed to current and former staff.

When is pay-as-you-go holiday pay allowed?

Paying 8% on top of each pay instead of giving annual holidays is tempting because it’s simple. It’s only permitted when:

• the employee works so irregularly or intermittently that giving four weeks’ annual holidays is impracticable, or
• the employee is on a genuine fixed-term agreement of less than 12 months.

The payment must be at least 8% of gross earnings, clearly identified on payslips and agreed in the employment agreement. Using pay-as-you-go for permanent staff with regular hours isn’t allowed and creates arrears.

Why is accrued leave a cash flow issue?

Every week a permanent employee works, they earn part of their next annual holiday. When they take it, you pay them for weeks without output. When they leave, you pay out any untaken leave in their final pay. Either way, the cash goes out.

Illustrative example. A Christchurch architecture practice has eight staff averaging $1,500 a week. Several have built up large balances; the total owed is 26 weeks of leave, about $39,000. If two senior staff resign in the same month with five weeks each owing, the practice pays out $15,000 of holiday pay on top of their final wages. That’s money it needs to have available.

Ways to manage it:

• Encourage staff to take leave regularly; it’s better for them and smooths the cost.
• Report leave liability monthly alongside your other key numbers. Our monthly numbers check has a place for it.
• Plan a closedown if it suits your business, following the notice and other rules for closedowns. See the summer close-down.
• Include it in your reserve. A cash reserve that covers a few weeks of payroll also covers an unexpected payout.

How does holiday pay affect pricing?

Paid leave and public holidays reduce the productive hours you get from each employee. A full-time employee might be paid for 2,080 hours but work around 1,800 once annual holidays, public holidays and sick leave come out. Your prices and charge-out rates need to recover the cost of the paid hours from the worked ones. How to set a charge-out rate shows the calculation.

What about alternative holidays and working on public holidays?

When an employee works on a public holiday that would otherwise be a working day for them, the rules generally require them to be paid at least time and a half for the hours worked and, in many cases, to receive an alternative holiday (a paid day off in lieu) as well. For hospitality, retail, healthcare and other businesses that trade through public holidays, this is a significant cost that belongs in rostering and pricing decisions. Many cafés and restaurants apply a public holiday surcharge for this reason; if you do, the Commerce Commission expects surcharges to be declared before customers buy. Check Employment New Zealand’s guidance on public holidays for the details that apply to your staff.

What’s changing?

Employment New Zealand says the Employment Leave Act will replace the Holidays Act in August 2028, describing it as a major change to how leave works. Until then, current Holidays Act rules apply. Keep an eye on official guidance as the start date approaches, and expect payroll systems to need updating.

When leave costs and growth collide

Peak season, a closedown and a couple of resignations can all land in the same quarter. If holiday pay and wages are straining the account while the business grows, a facility arranged in advance can carry the gap. You can check your options without a credit check.

People looked after, plans funded

A business that pays leave correctly and plans for it is a business staff want to stay with. If your next step involves more people and you’d like funding behind it, talk to us. We look at unsecured options for trading businesses and lending secured on residential or commercial property. Asking won’t touch your credit file, your details aren’t passed to other lenders, and a real person on our New Zealand team reads what you send. Please answer accurately so our first call can be specific. Start your enquiry.