Annual leave in New Zealand: Employer guide to holiday entitlements

Published Wednesday 15 July 2026

Table of contents

• What is annual leave in New Zealand?
• How much annual leave do employees get and when do they get it?
• How to calculate and pay annual leave
• When can employees take annual leave?
• What happens to annual leave when employment ends?
• Other types of leave in New Zealand
• How can you manage annual leave with less admin?
• Simplify annual leave payroll with Xero
• FAQs on annual leave in New Zealand

Key takeaways

• Employees in New Zealand become entitled to at least four weeks of paid annual leave after 12 months of continuous employment.
• Pay annual leave at the higher of ordinary weekly pay or average weekly earnings, and define a week by the employee's usual work pattern.
• Employees can request to cash up up to one week of annual leave per entitlement year; closedowns and parental leave have special rules.
• Clear policies, accurate records, and simple workflows help you stay compliant with the Holidays Act and cut admin.

What is annual leave in New Zealand?

Annual leave in NZ is the paid time off that employees are entitled to under the Holidays Act 2003. It's expressed in weeks, not days, and is separate from public holidays and sick leave.

While the term “annual holidays” is often used interchangeably with “annual leave”, the key point is that entitlement begins after 12 months of continuous employment. Before that milestone, employees don't accrue annual leave in the formal sense.

Many employers use annual leave accrual language in their payroll systems to show employees how their leave is building up over the year. This is helpful for visibility and planning, but remember that the legal entitlement only kicks in at the 12-month mark.

Understanding this distinction helps you communicate clearly with your team and ensures your payroll records reflect both the legal position and the practical tracking of leave.

How much annual leave do employees get and when do they get it?

After each completed 12 months of continuous employment, an employee is entitled to not less than four weeks' paid annual holidays. This is the baseline set by the Holidays Act, and you can offer more if you choose.

How many weeks of annual leave do employees get?

Most employees get four weeks of annual leave per year. However, what counts as a week depends on the employee's normal work pattern.

For a full-time employee working Monday to Friday, a week is five days. For someone working part-time on Tuesdays and Thursdays, a week is two days. This means part-time employees still receive four weeks of leave, but the number of days will be proportional to their usual schedule.

When does the entitlement year reset?

The entitlement year starts on the employee's first day of work and resets on each anniversary. If an employee takes extended leave without pay, or if you have an annual closedown, the anniversary date may shift under the Holidays Act. You’ll need to track this carefully, especially if you're managing multiple employees with different start dates.

How does parental leave affect annual leave?

Parental leave pauses the accrual of annual leave but does not reset an employee's entitlement anniversary date. When an employee returns from parental leave, their anniversary date is extended by the length of the parental leave taken.

When an employee returns from parental leave within their first 12 months of employment, their annual leave pay is calculated using average weekly earnings rather than ordinary weekly pay. This applies because their work pattern has been interrupted, and average weekly earnings give a fairer result based on what they actually earned before taking leave.

If an employee takes parental leave after completing 12 months, any unused annual leave entitlement is preserved and available when they return.

How to calculate and pay annual leave

When an employee takes annual leave, you must pay them at the higher of two rates:

• Average weekly earnings: the average of their gross earnings over the past 52 weeks
• Ordinary weekly pay: what the employee would have earned if they worked that week

This higher-of rule ensures employees don't lose out when their earnings vary due to overtime, bonuses, or irregular hours. Using an annual leave calculator can help you compare these rates accurately and reduce manual errors.

Ordinary weekly pay versus average weekly earnings

Ordinary weekly pay is the amount the employee would normally receive for a standard week of work. It's straightforward for salaried employees with fixed hours.

Average weekly earnings is calculated by taking the employee's gross earnings over the last 52 weeks and dividing by 52. This rate often comes out higher for employees with variable hours, shift allowances, or performance bonuses.

Here is a simple three-step method to pick the right rate:

1. Calculate the employee's ordinary weekly pay for the week they're taking off.
2. Calculate their average weekly earnings over the past 52 weeks.
3. Pay whichever amount is higher.

For more detail on what counts as gross earnings, refer to the IRD guidance on holiday pay.

What counts as gross earnings

Gross earnings are used to calculate both leave pay and 8% holiday pay on termination. They include:

• wages and salary
• overtime and penal rates
• piece rates and commissions
• productivity or performance bonuses
• taxable allowances, for example tool or uniform allowances

Gross earnings exclude:

• genuine expense reimbursements, for example mileage or meal allowances
• redundancy or severance payments
• one-off payments not related to work performed

Here’s a guide to managing overtime, bonuses, and commissions.

Handling variable hours and rosters

For employees on variable hours or days, calculating annual leave requires careful tracking of their work pattern and gross earnings.

• Payment rate: Use the higher of ordinary weekly pay or average weekly earnings over the past 52 weeks.
• Length of leave: A week of leave matches the employee's usual work pattern. If their hours vary significantly, you may need to calculate an average week based on the last 52 weeks.

When can employees take annual leave?

Once an employee has worked for 12 months, they can request to take their annual leave. You and the employee need to agree on the timing, and you should respond to requests promptly and fairly.

You can decline a request for genuine business reasons, such as a busy period or insufficient cover, but you must discuss this with the employee and try to find an alternative time.

Can employees take leave in advance?

Yes, you can agree to let an employee take annual leave before they've completed 12 months. This is sometimes called leave in advance and should be recorded clearly in your payroll system.

If the employee leaves before they've worked long enough to earn the leave they've taken, you can recover the value from their final pay, provided your employment agreement allows for it. This is where tracking annual leave accrual in your payroll software becomes essential.

What happens in an annual closedown?

You can require your business to close for up to one closedown period per year, for example, over the Christmas and New Year period. During a closedown:

• Employees must use their accrued annual leave entitlement to cover the closedown period.
• If they don't have enough leave, you can agree to let them take leave in advance or take leave without pay.
• A closedown can reset the employee's anniversary date under the Holidays Act, so keep accurate records.

Closedowns are common in industries like construction and manufacturing. Make sure you give employees plenty of notice and document the arrangement clearly.

Can employees cash up annual leave?

Annual leave cash up rules allow employees to request to cash up up to one week of their annual leave entitlement per entitlement year. Approval is at your discretion, and you can choose whether or not to agree.

If you do approve, the payment is calculated using the same higher-of method: ordinary weekly pay or average weekly earnings. This option can be useful for employees who prefer extra cash over time off, but they should still take enough leave to rest and recharge.

Create a clear policy on cashing up leave so employees know what to expect and you can manage requests consistently.

Can annual leave be carried over?

Carrying over annual leave is allowed by agreement between you and the employee. However, you can also direct an employee to take leave if their balance is building up excessively. You must give at least 14 days' notice and have a fair discussion before directing leave.

Managing leave balances proactively helps avoid large payouts when employees leave and ensures your team takes time off to maintain their wellbeing.

Here’s a guide to knowing your responsibilities as an employer.

What happens to annual leave when employment ends?

When employment ends, you must pay out any outstanding annual leave on termination at the higher-of rate: ordinary weekly pay or average weekly earnings.You also need to account for 8% holiday pay, which covers the period since the employee's last entitlement anniversary.

If employment ends before 12 months

If an employee leaves before completing 12 months of continuous employment, they haven't yet become entitled to annual leave. Instead, the employer must pay the employee 8% of the employee's gross earnings from that period, less any leave taken in advance.

You also need to account for any public holidays that would have been working days during their employment.

If employment ends after 12 months

If the employee has worked for more than 12 months, you pay:

• Any unused annual leave entitlement at the higher-of rate
• Plus 8% of gross earnings since their last entitlement anniversary, to cover the period they've worked towards their next four weeks
• Minus any leave taken in advance

This ensures employees are fairly compensated for the leave they've earned but not yet taken.

Public holidays during final pay

If a public holiday falls on what would have been a working day during the employee's notice period, it's treated as a public holiday and paid accordingly. It's not deducted from their annual leave balance.

This is an important detail to get right, especially if the employee is working out their notice over a holiday period like Christmas or Easter.

Other types of leave in New Zealand

Annual leave is one of several paid leave entitlements under the Holidays Act 2003. Each type of leave is separate, and you can't use one type of leave instead of another.

The other main leave entitlements in New Zealand include:

• Sick leave: After an employee has been working for you for six months, they're legally entitled to 10 days' sick leave a year, which can be used for their own illness or to care for a dependent.
• Bereavement leave: Employees are entitled to paid bereavement leave when a member of their immediate family or household dies, or in other bereavement circumstances.
• Public holidays: Employees who would otherwise work on a public holiday get a paid day off; if they do work, they should be paid at least time and a half plus an alternative holiday.
• Parental leave: Eligible employees can take unpaid or paid parental leave when they become a parent.

Employees can carry over unused sick leave, allowing them to accumulate up to 20 days of sick leave in total. For more detail, see the Ministry of Business, Innovation, and Employment (MBIE) sick leave guidance.

How can you manage annual leave with less admin?

Managing annual leave correctly is essential for compliance and employee satisfaction, but it doesn't have to be a manual slog. Here are some practical steps to reduce admin:

• Set clear policies. Document your annual leave policy in your employment agreements and employee handbook. Include details on how leave is requested, approved, and paid.
• Keep accurate records. Track each employee's start date, entitlement anniversary, leave balance, and gross earnings. This is required under the Holidays Act and makes calculations easier.
• Use simple approval workflows. Set up a process for employees to request leave. For example, use email or a shared calendar where managers can approve or decline requests with clear reasons.
• Automate calculations. Use an annual leave calculator or payroll software to apply the higher-of rule automatically. This reduces errors and saves time, especially when dealing with variable hours or complex pay structures.

What records must you keep?

Under the Holidays Act 2003, you must keep accurate leave records for every employee. These records have to be available for inspection by the employee or a labour inspector, and kept for at least six years.

Simplify annual leave payroll with Xero

You can use Xero to automate leave calculations, keep accurate records, and reduce payroll admin. It handles the higher-of calculation, tracks each employee’s entitlement anniversary, flags leave balances that need attention, and even allows employees to request leave directly in the Xero Me app. This helps you stay compliant with the Holidays Act and New Zealand labour laws.

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FAQs on annual leave in New Zealand

Managing annual leave can raise a lot of questions, especially when you're trying to stay compliant with the Holidays Act while keeping your payroll processes simple. Here are clear answers to key questions employers have about annual leave in New Zealand.

Can you pay 8% instead of providing annual leave?

For permanent employees, you must provide at least four weeks of paid annual leave after 12 months of continuous employment. An 8% payment in lieu is only used in specific situations, such as when employment ends.

The 8% holiday pay is only used when employment ends before 12 months or to cover the period since their last entitlement anniversary on termination. It's not a replacement for annual leave.

Do fixed-term employees get annual leave?

Yes. Fixed-term employees are entitled to the same annual leave entitlement as permanent employees: four weeks after 12 months of continuous employment.

If the fixed-term contract ends before 12 months, the employee receives 8% of their gross earnings as holiday pay on their final pay.

What if a public holiday falls during annual leave?

If a public holiday falls on a day that would otherwise be a working day for the employee, it's treated as a public holiday, not as annual leave. This means:

• The day is paid as a public holiday, at the employee's relevant daily pay or average daily pay.
• It doesn’t reduce the employee's annual leave balance.

This rule applies whether the employee is on annual leave or has already left the business and is being paid out their final entitlements.

Can you require an employee to take annual leave?

Yes, but only in specific circumstances and with proper process:

• Annual closedown: You can require employees to take annual leave during a closedown period. For example, you might close over Christmas and require employees to take annual leave, provided you give reasonable notice and follow the Holidays Act rules.
• Excessive leave balances: If an employee has built up a large leave balance and is not taking leave, you can direct them to take it. You must give at least 14 days' notice and have a fair discussion with the employee first.

You cannot force an employee to take leave simply because it's convenient for the business. The request must be reasonable and justified.

How many weeks of annual leave do part-time staff get?

Part-time employees receive the same four weeks of annual leave entitlement as full-time employees. However, the number of days they take will be proportional to their usual work pattern.

For example, if a part-time employee works two days per week, a week of leave is two days. So four weeks of leave equals eight days total.

This is a common area of confusion, but the principle is simple: annual leave is expressed in weeks, and a week is defined by the employee's normal working pattern.