Holiday pay in New Zealand: How to calculate and what employers must pay

Published Thursday 23 July 2026

Table of contents

• What is holiday pay in New Zealand?
• Who is entitled to holiday pay?
• How to calculate holiday pay
• How to pay holiday pay on termination
• Holiday pay paid in advance
• What counts as gross earnings?
• Common mistakes employers make with holiday pay
• Simplify holiday pay and payroll with Xero
• FAQs on holiday pay

Key takeaways

• Use the method the Holidays Act 2003 requires for the situation: weekly measures for annual holidays and daily measures for public holidays.
• For annual holidays, pay the higher of ordinary weekly pay or average weekly earnings, and for public holidays, use relevant daily pay or average daily pay.
• Only use the 8% pay-as-you-go option for genuine casual or short fixed-term roles, and show it as a separate line on payslips.
• Final pay must include entitled annual holidays, 8% of gross earnings since the last anniversary for accrued leave, and any owed public or alternative holidays.

What is holiday pay in New Zealand?

Holiday pay covers what you must pay employees when they take annual leave, work on a public holiday, or leave the job before using all of their leave. The Holidays Act 2003 sets out minimum entitlements for all employees, regardless of whether they’re permanent, part-time, casual, or fixed-term.

As an employer, you’ll manage three main types of holiday pay. Annual leave covers the four weeks of paid leave employees earn after working for you for 12 months. Public holiday pay covers days your employee would otherwise have worked and comes in at a higher rate if they do work on that day. An 8% pay-as-you-go approach is an option for casual and temporary employees with fixed terms under 12 months.

Who is entitled to holiday pay?

All employees in New Zealand are entitled to holiday pay under the Holidays Act 2003, regardless of whether they work full-time, part-time, or casual hours.

Employees earn annual holidays after 12 months of continuous employment with you, giving them four weeks’ paid leave each year. If employment ends before an employee completes a full year, you must pay out any accrued holiday pay, which is calculated as 8% of the employee's gross earnings for that period of employment.

Part-time and variable-hours employees are entitled to the same leave as full-time staff. The calculation methods under the Holidays Act ensure fair pay regardless of work pattern.

If you’re unsure whether an employee qualifies for a particular type of leave, check the employment agreement and apply the otherwise working day test for public holidays. You can also seek advice from an employment specialist or your accountant to ensure you stay compliant.

How to calculate holiday pay

Holiday pay calculation in New Zealand follows a clear sequence. The method you use depends on the type of leave and whether the employee worked on the day in question. Here is a simple five-step process:

1. Identify the leave type. Is it annual holidays, a public holiday not worked, or a public holiday worked?
2. Apply the otherwise working day test. Would the employee have worked that day if it had not been a public holiday?
3. Pick the correct method. Use weekly measures for annual holidays and daily measures for public holidays.
4. Run the calculation. Apply the formula that gives the employee the highest pay.
5. Record on the payslip and in your payroll system. Keep accurate records for compliance and future reference.

Annual holidays: ordinary weekly pay vs average weekly earnings

When an employee takes annual holidays, you must pay them the higher of two amounts: ordinary weekly pay or average weekly earnings.

Ordinary weekly pay is what the employee would have received if they had worked their normal week. It includes their regular salary or wages, plus any regular payments like allowances, overtime, or commission that are part of their usual pay pattern. You exclude one-off bonuses or irregular payments.

Average weekly earnings is the employee's gross earnings over the 12 months before the leave is taken, divided by 52. This method captures variable pay patterns and ensures employees are not disadvantaged when their hours or earnings fluctuate.

Example: Sarah earns a base salary of $52,000 a year, or $1,000 per week. Over the past 12 months, she also earned $3,000 in overtime. Her ordinary weekly pay is $1,000. Her average weekly earnings are $55,000 ÷ 52 = $1,058 per week. When Sarah takes a week of annual leave, you pay her $1,058 because it’s the higher amount.

Here’s a guide to annual leave in New Zealand.

Public holidays: relevant daily pay versus average daily pay

For public holidays, you use daily measures instead of weekly ones. Again, you pay the higher of two amounts: relevant daily pay or average daily pay.

Relevant daily pay is what the employee would have earned on that day if they had worked their normal shift. It includes their usual daily rate plus any regular daily allowances, commissions, or other payments they would have received. If the employee's daily pay varies so much that it is not possible to determine a relevant daily pay, you use average daily pay instead.

Average daily pay is the employee's gross earnings over the 12 months before the public holiday, or since they started if less than 12 months, divided by the number of whole or part days they worked or were on paid leave during that period. This method works well for employees with irregular hours or pay.

Example: Tom works variable hours in retail. Over the past 12 months, he earned $42,000 and worked or was on paid leave for 240 days. His average daily pay is $42,000 ÷ 240 = $175. If Waitangi Day falls on a Monday and Tom would normally work Mondays, meaning it is an otherwise working day, you pay him $175 for the public holiday even if he does not work.

The otherwise working day test is crucial here. If the public holiday falls on a day Tom would not normally work, he does not get paid for it.

Public holidays worked: time and a half and alternative holidays

If an employee works on a public holiday, the rules change. They must receive at least 1.5 times their relevant daily pay or average daily pay for the time that they work.

On top of that, if the public holiday was an otherwise working day, the employee also gets an alternative holiday, a paid day off to take later. The alternative holiday is paid at the rate of the employee's relevant daily pay or average daily pay at the time they take it.

Example: Emma works her usual eight-hour shift on Anzac Day, which is an otherwise working day for her. Her relevant daily pay is $200. For working Anzac Day, she receives $200 × 1.5 = $300. She also earns an alternative holiday, which she can take later and will be paid at her relevant daily pay or average daily pay at that time.

If the public holiday was not an otherwise working day but the employee worked anyway, they still get time-and-a-half for the hours worked, but they do not get an alternative holiday.

8% pay as you go: when it applies

The 8% pay-as-you-go method is a simplified approach where you pay 8% of the employee's gross earnings each pay period instead of accruing annual holidays. This 8% is paid in addition to their wages and must be clearly shown as a separate line on the payslip.

You can only use this method if the employee is:

• a genuine casual, meaning no regular pattern of work and no ongoing expectation of employment, or
• on a fixed-term agreement of less than 12 months

You cannot offer pay as you go to permanent employees or those on fixed-term contracts of 12 months or longer, even if the employee requests it. If you use pay as you go incorrectly, you may still owe the employee their full annual holiday entitlements.

Example: Jack is a genuine casual working irregular shifts in hospitality. In a pay period, he earns $800 gross. You pay him $800 plus $64 in holiday pay, for a total of $864. The $64 is shown separately on his payslip as holiday pay. Jack does not accrue annual holidays.

For fixed-term employees, there are two options for how the 8% is paid. You can either add it to each pay period or pay it out as a lump sum at the end of the fixed term. Either approach is acceptable, but it must be clear in the employment agreement.

Always document the employment relationship clearly in the employment agreement. If you are uncertain whether pay as you go applies, consult your accountant or an employment law advisor.

Closedowns and irregular rosters

Closedowns occur when you shut your business for a period, such as over Christmas, and require employees to take annual holidays. You must give at least 14 days' notice. Employees who do not have enough annual holidays accrued can be required to take the leave in advance, or you may agree they take unpaid leave. If an employee is on pay as you go, closedowns don't apply in the same way. They simply aren't paid for the days the business is closed.

For employees on variable or irregular rosters, apply the otherwise working day test carefully for public holidays. If their roster changes week to week, determine whether the public holiday falls on a day they would have been rostered to work based on their recent work pattern. Use average daily pay if their earnings vary significantly, as relevant daily pay may not be determinable.

How to pay holiday pay on termination

When an employee leaves your business, you must pay all their outstanding leave entitlements in their final pay, as required under the Holidays Act 2003.

Final pay must include:

• any entitled annual holidays the employee has accrued and not yet taken
• 8% of gross earnings since their last anniversary date for leave that has not yet been entitled
• any unused alternative holidays
• payment for any public holidays that fall in the final pay period and meet the otherwise working day test

Entitled leave versus 8% of gross since last anniversary

If the employee has completed at least 12 months of service, they will have entitled annual holidays. These are the four weeks of leave they have earned. Any portion of this leave they have not taken must be paid out at the higher of ordinary weekly pay or average weekly earnings at the time of termination.

On top of that, the employee will have worked some period since their last anniversary date, which is the date they became entitled to their most recent four weeks. For this period, you pay 8% of their gross earnings since that anniversary. This represents the leave they have started to accrue but have not yet become entitled to.

Example: Maria has been with your business for 18 months. She became entitled to four weeks' annual leave after 12 months and has taken two weeks, leaving two weeks owing. She has also worked six months since her last anniversary. In her final pay, you must pay:

• two weeks of entitled leave at the higher of ordinary weekly pay or average weekly earnings
• 8% of her gross earnings over the past six months for accrued but not yet entitled leave

If an employee leaves before completing 12 months, they have no entitled leave. Instead, you pay 8% of their total gross earnings since they started.

Alternative holidays and public holidays in the final week

Any alternative holidays the employee has earned from working public holidays that were otherwise working days must be paid out. These are paid at the relevant daily pay or average daily pay at the time of termination.

If a public holiday falls during the employee's notice period or final week, and it is an otherwise working day, you must pay for it using the relevant daily pay or average daily pay method. If the employee works that public holiday, they receive time-and-a-half plus an alternative holiday, which is then immediately paid out in the final pay since they are leaving.

Worked examples at $24 and $30 per hour

Example 1: John earns $24 per hour and works 40 hours per week, which is $960 per week. He has been employed for 14 months and is leaving. He has taken one week of his entitled annual leave. Over the past two months since his last anniversary, he has earned $7,680 gross.

• Entitled leave owing: Three weeks at the higher of ordinary weekly pay or average weekly earnings. Assume both are $960. Pay = 3 × $960 = $2,880
• Accrued leave: 8% of $7,680 = $614.40
• Total holiday pay on termination: $2,880 + 614.40 = $3,494.40

Example 2: Lisa earns $30 per hour and works 30 hours per week, which is $900 per week. She has been employed for eight months and is leaving. She is on pay-as-you-go, so she has no entitled leave. Her total gross earnings over eight months are $28,800.

• Accrued leave: 8% of $28,800 = $2,304, but she has already been paid this incrementally via pay as you go, so no additional payment is owed for annual holidays.

If she has any alternative holidays owing from working public holidays, those must be paid at her relevant daily pay or average daily pay.

Always double-check your calculations and keep detailed records. Final pay errors can lead to penalties and damage your reputation as an employer. If you are unsure, consult your accountant or payroll specialist before processing the final payment.

Holiday pay paid in advance

You can offer employees holiday pay paid in advance before they take leave, rather than during or after. This typically happens when an employee requests payment before a planned break or when your business closes down for a period such as over Christmas.

Pay as you earn (PAYE) on advance holiday pay works differently depending on how you pay it. If you pay it as a lump sum separate from the employee's regular wages, you must use the lump sum tax rate rather than the employee's standard tax code rate. If you include it in the same pay run as their regular wages, you apply their normal tax code to the combined amount. Inland Revenue Department (IRD) guidance recommends treating advance holiday pay as a separate payment wherever possible to avoid under-deducting PAYE.

For IRD filing, you have two options. You can file a separate employment information schedule for the advance payment or include it in your next regular reporting schedule. Either approach is acceptable, but the payment must be reported in the same period it is made.

See Employment New Zealand for more information about taking holiday pay in advance.

What counts as gross earnings?

Gross earnings form the basis of most holiday pay calculations in New Zealand.

Include in gross earnings:

• wages and salary
• overtime payments
• regular allowances such as tool allowances, uniform allowances, or vehicle allowances that are part of normal pay
• commission and productivity bonuses that are regular and part of the employment agreement
• paid leave including annual holidays, sick leave, bereavement leave, and public holidays
• incentive payments tied to performance

Exclude from gross earnings:

• Genuine discretionary bonuses: One-off payments made at your sole discretion, not based on any contractual entitlement or regular pattern
• Reimbursements: Payments that simply reimburse the employee for expenses they have incurred, such as mileage, meal allowances, or travel costs
• Payments in lieu of notice, redundancy, or severance payments

The distinction between a discretionary bonus and a regular incentive payment can be subtle. If the bonus is tied to meeting targets, is paid regularly, or is outlined in the employment agreement, it is likely part of gross earnings. If it is a genuine one-off gesture with no pattern or entitlement, it can be excluded.

Example: Your sales team receives a quarterly commission based on sales targets. This is part of gross earnings and must be included in average weekly earnings and average daily pay calculations. However, if you give the team a one-off $500 bonus at Christmas as a goodwill gesture with no contractual basis, that is a discretionary bonus and can be excluded.

When in doubt, include the payment in gross earnings. It’s safer to overestimate and ensure your employees are paid fairly than to exclude something that should have been counted. Your payroll software should help you track and categorise earnings correctly, but always review the classifications with your accountant or bookkeeper.

Common mistakes employers make with holiday pay

If you calculate holiday pay correctly, you avoid back-pay claims, regulator reviews, and Employment Relations Authority proceedings. These are the mistakes employers most commonly make.

• Using pay as you go for permanent employees: Pay as you go is only lawful for genuine casuals or employees on fixed-term agreements shorter than 12 months. Applying it to permanent staff, even with their agreement, does not remove the employee's entitlement to annual holidays.
• Not showing 8% as a separate payslip line: When pay as you go applies, the 8% must appear as an identifiable, separate component on every payslip. Bundling it into the hourly rate makes the arrangement unlawful.
• Paying the lower of ordinary weekly pay and average weekly earnings: The Holidays Act 2003 requires you to pay the higher of the two. Defaulting to ordinary weekly pay when average weekly earnings is greater is a common underpayment error.
• Applying the otherwise working day test incorrectly: If you are unsure whether a public holiday falls on a day the employee would normally work, check their roster history and employment agreement rather than guessing. Getting this wrong affects both the payment obligation and the alternative holiday entitlement.
• Excluding commission and regular bonuses from gross earnings: Regular, contractual commission and productivity bonuses must be included in average weekly earnings and average daily pay calculations. Excluding them reduces the holiday pay rate below the legal minimum.
• Missing the 8% of gross since last anniversary in final pay: When an employee leaves, you must pay 8% of their gross earnings since their last anniversary date in addition to any entitled leave owing. Omitting this component is one of the most frequent final pay errors.
• Not paying alternative holidays for public holidays worked: If an employee works on a public holiday that is an otherwise working day, they are entitled to an alternative holiday in addition to time-and-a-half pay. Failing to record and pay this entitlement creates a growing liability over time.

You must keep accurate records of all leave and holiday pay for at least six years. Failing to comply with the Holidays Act can result in significant financial penalties, with fines up to $10,000 for an individual employer, and $20,000 for a company.

Simplify holiday pay and payroll with Xero

Managing leave and holiday pay gets easier when your payroll and accounting work together. Xero helps you track leave, calculate pay correctly, and keep clear records so you stay compliant with the Holidays Act 2003.

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FAQs on holiday pay

This section answers common questions about holiday pay in New Zealand, covering calculations, entitlements, and practical scenarios employers and employees often face.

How much is holiday pay for $23.95 an hour?

Holiday pay for someone on $23.95 per hour, New Zealand’s current minimum wage, is based on their ordinary weekly pay. For example, $958 for 40 hours, or their average weekly earnings, whichever is higher. For public holidays, you use relevant daily pay or average daily pay and pay at least time and a half if they work.

Here’s more information about minimum wage in New Zealand.

How much is holiday pay for $35 an hour?

An employee earning $35 per hour and working 30 hours per week has an ordinary weekly pay of $1,050. For annual holidays, pay the higher of $1,050 or their average weekly earnings. For public holidays, use the same daily pay methods as above: relevant daily pay or average daily pay, whichever is higher.

If they are on an 8% pay-as-you-go arrangement and are eligible for it, they receive their normal pay plus 8% holiday pay. At $35 per hour, that is an extra $2.80 for each $35 earned, and it must be shown separately on the payslip.

If an employee on $35 per hour works on a public holiday, they earn at least $52.50 (time and a half) plus an alternative holiday if applicable.

Is holiday pay 8% in New Zealand?

You only use 8% as holiday pay for genuine casuals or fixed-term employees on agreements shorter than 12 months. For fixed-term employees, the 8% can either be added to each pay period or paid as a lump sum at the end of the contract. For other staff, you calculate annual holidays and public holidays using the weekly and daily pay methods set out in the Holidays Act 2003.

Can you cash up annual leave?

You can agree to cash up up to one week of an employee's annual leave each year if they ask you in writing. Approval is at your discretion. If you do approve, calculate the payment using the higher of ordinary weekly pay or average weekly earnings just as you would when employees take leave normally.

Do you pay holiday pay on bonuses and commission?

You must include regular, contractual bonuses and commission in gross earnings when you calculate holiday pay. Only genuine one-off discretionary bonuses can be left out.

What happens 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, and that day falls within a period of annual holidays, the public holiday does not count as part of the annual holidays. In other words, the employee gets the public holiday as a separate entitlement, and their annual leave balance is not reduced for that day.

For example, if an employee takes two weeks of annual leave and a public holiday falls on a Tuesday during that period, and Tuesday is normally a working day for them, they use nine days of annual leave, not ten. The public holiday is paid separately at the relevant daily pay or average daily pay rate.

What happens if I have been calculating holiday pay incorrectly?

If you have underpaid an employee, back-pay the difference as soon as possible. Correcting any underpayments quickly reduces the risk of penalties from IRD or the Employment Relations Authority. Talk to an employment law specialist or your accountant to work out the correct amounts and document the correction in your payroll records.