Skip to main content

Disclaimer: Educational purposes only. Not legal advice. Consult a qualified NZ legal practitioner for your specific circumstances.

SimplifiedLaw.co.nz
employment

How does annual leave accrue in New Zealand?

Key Takeaway

In New Zealand, employees become entitled to four weeks of annual leave after 12 months of continuous employment. This leave is paid at their ordinary weekly pay or an average of their earnings. If employment ends before 12 months, an employee is typically paid 8% of their gross earnings for untaken leave.

Understanding Annual Leave Accrual in New Zealand

Annual leave, also known as holiday pay, provides employees with paid time off from work. In New Zealand, the framework for annual leave is primarily set out in the Holidays Act 2003. This legislation defines when employees become entitled to annual leave, how it is calculated, and their rights and obligations concerning its use.

Entitlement to Annual Leave

An employee becomes entitled to a minimum of four weeks of paid annual leave after they have completed 12 months of continuous employment with the same employer [Source: Holidays Act 2003, s 16(1)]. Continuous employment generally refers to an unbroken period of service. If an employee has completed 12 months of continuous employment on or after 1 April 2007, they are entitled to 4 weeks annual leave [Source: Holidays Act 2003, s 16(2)(b)].

Calculation of Annual Leave Accrual

While the full entitlement to take annual leave vests after 12 months, an employee effectively 'accrues' an entitlement to be paid out for untaken leave if their employment ends before this 12-month period. If an employee's employment terminates before they complete 12 months of continuous employment, the employer must pay the employee 8% of their gross earnings since the start of their employment, less any annual leave already paid out [Source: Holidays Act 2003, s 18(2)].

Payment for Annual Leave

When an employee takes annual leave, they must be paid at a rate that is the greater of their ordinary weekly pay or their average weekly earnings [Source: Holidays Act 2003, s 21].

  • Ordinary weekly pay is the amount the employee receives for an ordinary working week. It includes regular payments such as salary, wages, and allowances but generally excludes overtime and one-off payments [Source: Holidays Act 2003, s 21].
  • Average weekly earnings is calculated by averaging the employee's gross earnings over the 52 weeks (or such shorter period if employment is less than 52 weeks) immediately before the annual leave [Source: Holidays Act 2003, s 24].

For specific days of leave, the payment calculation can also involve:

  • Relevant daily pay refers to the amount the employee would have received if they had worked on the day the leave is taken [Source: Holidays Act 2003, s 22].
  • Average daily pay is calculated if it is not possible or practicable to determine the employee's relevant daily pay. It involves averaging the employee's gross earnings over the 52 weeks (or shorter period) immediately before the day on which the leave is taken, divided by the number of whole or part days on which the employee worked during that period [Source: Holidays Act 2003, s 23].

Taking Annual Leave

Annual leave must be taken at a time agreed upon by both the employer and the employee [Source: Holidays Act 2003, s 34(1)]. Employers must not unreasonably refuse an employee's request for annual leave. If an agreement cannot be reached, the employer may, with at least 14 days' notice, require the employee to take annual leave [Source: Holidays Act 2003, s 35(1)].

Untaken Annual Leave upon Termination

When employment ends, an employee is entitled to be paid for any untaken annual leave that they have become entitled to (i.e., leave from a completed 12-month period) at the rate of the greater of their ordinary weekly pay or average weekly earnings [Source: Holidays Act 2003, s 21, s 24, and s 25]. Additionally, as mentioned above, if employment terminates before a 12-month entitlement period is completed, payment of 8% of gross earnings (less any annual leave already paid out) is required [Source: Holidays Act 2003, s 18(2)].

When to Seek Independent Legal Advice

Navigating specific annual leave situations, especially concerning complex pay calculations, varying work patterns, or disputes, can be challenging. Individuals seeking clarification on their specific employment circumstances, entitlements, or obligations should consider contacting Employment New Zealand or Community Law Centres for free and confidential advice. Legal professionals specialising in employment law can provide tailored guidance.

Key Resources