Annual Leave

What are my employees’ annual holiday entitlements?

Annually, your employees are entitled to four weeks’ minimum paid holidays. They become entitled after their first 12 months of continuous employment. Then, their entitlement period is every following 12 months of employment.

An employee’s entitlement is determined by what genuinely makes up their work week. In some cases, it will be clear what a week is, as this will be in the employment agreement. Or, it will be clear as your employee work fairly regular hours or days.

But if an employee’s hours and days vary, then what defines a working week can only be determined when the annual holidays are taken. In the first instance, you and your employee should try to work out whether there is a pattern to their work. This is to define the employee’s working week. If this isn’t possible, you can define a week as an average number of hours or days, over a suitable number of weeks, prior to the holidays being taken.

How do I work out my employees’ holiday pay?

Calculating holiday pay can be hard, especially when your employees have varying work hours and days.

If you want to know how to work out how to pay your staff for National Public Holidays and Regional Anniversary Dates, see our 2024 New Zealand Public Holidays page.

Firstly, when it comes to ensuring holiday pay is calculated correctly, an efficient payroll system is very valuable. It removes the need for manual calculations. iPayroll offers Retail NZ members a free package, valued up to $100. See more info on this package here.

Secondly, if you’re having difficulty with a particular scenario, we’re here to help! You can contact our Advice Service on 0800 472 472 (or 1800 128 086 from Australia).

When can an employee take their annual leave?

The Holidays Act specifies that annual leave must be taken at a time mutually agreed between employer and employee. You may choose to have a leave policy in place that requires a certain amount of notice prior to leave being taken, so that you can plan your roster accordingly, and ensure you are not left short staffed, particularly during busy seasons.

If you have a leave policy that requires a certain amount of notice prior to leave being taken, it’s important to consider each request on a case-by-case basis, as having a blanket rule for all situations may breach good faith provisions.

Payment for annual holidays

Payment for annual holidays is generally at the rate of the greater of the following rates:

  • The ordinary weekly pay at the start of the holiday.
  • Or, the employee’s average weekly earnings for the 12-month period. The 12-month period is from just before the end of the pay period, before the annual holiday is taken.

How to work out the rates:

Ordinary weekly pay

This is what an employee is normally paid weekly, under the employment agreement. For many employees, ordinary weekly pay is clear, because they are paid the same amount each week. If it isn’t possible to work out ordinary weekly pay, use the following formula:

  1. Go to the end of the last regular pay period before the holiday.
  2. From that date, go back four calendar weeks. Or if the pay period is longer than four weeks, go back the pay period’s length.
  3. Work out the gross earnings for that period.
  4. Deduct from the gross earnings any payments that are irregular. Also deduct any payments the employer doesn’t have to pay.
  5. Divide the answer by number of calendar weeks used.

Average weekly earnings

This is the employee’s gross earnings over the 12 months, divided by 52. Look at the 12 month period just before the end of the last payroll period, before the annual holiday is taken.

At the start of every annual holiday, work out both the ordinary weekly pay, and the average weekly pay. Then use the higher of the two as the payment rate.

How do I work out annual holidays in an employee’s final pay?

At the end of an employee’s employment, there are two ways to work out payment for annual holidays.

If employment ends before completing the first 12 months of service:

Your employee is then entitled to a payment for annual holidays. This is 8% of gross earnings during the employment. The dollar value of this entitlement is reduced in a couple of ways:

  • By any payment for annual holidays taken in advance during the employment, or;
  • By any payment for annual holidays, on a pay-as-you-go basis.

If employment ends after becoming entitled to annual holidays:

There are two amounts to be calculated, which are added together to get the total annual holiday payment to be made.

  • The first amount is the greater of:
    • Ordinary weekly pay.
    • Average weekly earnings for the annual holidays the employee has become entitled to, as if the holidays were being taken at the end of the employment. The 12 months prior to leaving are used to establish average weekly earnings.
  • The second amount is annual holiday pay for the period since the employee last became entitled to holidays. This is calculated at 8% of the employee’s gross earnings since their last entitlement. Remove any annual leave already taken.

Example: Calculation of final payment for annual holidays

Stacey has been employed for one year and six months. She leaves employment on 12 May, and the last date she was entitled to annual holidays was 12 November. Stacey has already used one week of her annual holidays, so she has three weeks remaining at the end of her employment. Thus, Stacey is entitled to payment for: 

  • The three weeks of annual holiday remaining from her four week entitlement from November. This rate should be the greater of her average weekly earnings, or ordinary weekly pay.
  • PLUS, 8% of gross earnings for the six month period between 12 November and 12 May. Gross earnings for the 8% calculation includes the holiday pay calculated above, for Stacey’s three weeks of unused holidays.

As always, if you are a Retail NZ member and have any issues, our Advice Service is here to help. You email us, or call us on 0800 472 472 (1800 128 086 from Australia).

There are different scenarios to work out your employees entitlement to Annual Holiday. Retail NZ members can call and check with our advice team, if they have any difficulty on working out their employee’s annual pay. Not a Retail NZ member? Click here to learn more about joining our supportive Retail NZ community.

Updated January 2024.

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