How to calculate annual leave - a guide for employers

Annual leave payments can be hard to get right, and even some of New Zealand's biggest employers have made mistakes in their holiday pay. With Aotearoa introducing a new public holiday in 2022, find out more about how to calculate annual leave for your staff.

Why do we have public holidays?

Having some time away from work has lots of benefits for our mental and physical health. A long weekend can be a chance to de-stress, spend some more time with whānau and friends, and do the things you enjoy. This all helps us perform our best when we are working, so taking some time off can be good for both employees and their employers.

A mid-winter public holiday like Matariki can also give Aotearoa's hospitality and tourism businesses a much-needed boost at a time that's normally pretty quiet. 

What are the rules and regulations around annual leave?

If you're an employer, there's a lot to get right around annual leave and public holidays. You need to understand what your employees are entitled to, how leave accrues, and what your obligations are around pay.

The rules around holiday pay can be complex, and even the largest organisations can get this wrong sometimes. In recent years, some of New Zealand's highest-profile employers have miscalculated holiday pay entitlements for their employees.

The employment agreements you sign with employees should outline their annual leave entitlements, although they are entitled by law to a minimum of four weeks' leave after they've been employed continuously for 12 months.

It's important to remember that a 'week' is defined as an employee's ordinary working week. So a part-time employee who works three days per week is entitled to four weeks' holiday of three days each, or 12 days per year.

Most employers allow new employees to take leave as it accrues during the first 12 months. Be careful if you allow employees to take significantly more leave than they have accrued. It's a good idea to have a signed agreement between you and the employee that allows you to deduct any leave taken from their final pay.

For permanent employees, you are obliged to pay them holiday pay either at their ordinary pay rate or based on their average weekly earnings over the previous 12 months - whichever rate is higher.

For casual employees or employees employed for a fixed term of less than 12 months, you may pay holiday pay with their regular pay at a minimum rate of 8% of their gross earnings.

What are the rules for employees returning from parental leave?

For employees returning from parental leave, their holiday pay for the 12 months after they return to work from parental leave is calculated at the rate of their average weekly earnings for the 12 months immediately before the end of the last pay period before the public holiday. The effect of this calculation for an employee who has returned from unpaid parental leave is that it reduces the amount of holiday pay paid to the employee.

If any of your employees have irregular or changing work patterns, calculating annual leave and holiday pay entitlements can be complicated. You should check the Employment NZ website for guidelines on how to manage this.

How do you manage leave around public holidays?

It's important to have transparent processes around annual leave, particularly around popular holiday periods like Christmas, New Year, and Easter, when you may have to balance competing leave requests with minimum staffing requirements. A clear leave policy and application process is essential to make sure everyone is treated fairly.