Holidays Act

Holidays Act 2003 - leave entitlements and holiday pay rules

The Holidays Act 2003 sets minimum leave and holiday entitlements in New Zealand. The purpose is to promote balance between work and other parts of employees' lives, and to provide minimum entitlements for rest and recreation.

Most Holidays Act disputes are not about whether leave exists. They are about payroll setup, record keeping, and calculations. Problems commonly show up when employment ends, when an employee asks to take leave, or when a business is audited and discovers a historical underpayment (or a large liability sitting in the background).

What the Holidays Act covers

The Holidays Act sets minimum rules for:

• Annual holidays (annual leave) - time off after 12 months of continuous employment.
• Public holidays - paid days off where the day would otherwise be a working day, plus special rules if the employee works.
• Alternative holidays (days in lieu) - a paid day off later when an employee works a public holiday that would otherwise be a working day.
• Sick leave - paid sick leave entitlements and carry over rules.
• Bereavement leave - paid leave following a bereavement.
• Family violence leave - a specific leave entitlement for eligible employees.
• Leave and holiday pay calculations - rules for how to calculate pay for different types of leave and holidays.
• Record keeping - employers must keep accurate leave, holiday, and pay records.

Annual holidays (annual leave) - the basics

• Entitlement: after each completed 12 months of continuous employment, an employee is entitled to at least 4 weeks of paid annual holidays.
• When leave is taken: annual holidays are taken at a time agreed between employer and employee (subject to good faith and business needs).
• Closedowns: some workplaces require annual holidays to be taken during a closedown period (this must be handled correctly).
• Pay rate: annual holiday pay is not always simply "the usual weekly wage". The Act requires specific calculation methods.

Holiday and leave pay calculations - where businesses get caught

The Holidays Act uses different concepts depending on the entitlement. The key ones are:

• Annual holiday pay: typically calculated using the greater of ordinary weekly pay (OWP) or average weekly earnings (AWE). This is a common source of underpayments where employees have variable hours, allowances, overtime, or commission.
• Public holidays and alternative holidays: often calculated using relevant daily pay (RDP), and in some situations average daily pay (ADP) is used. There are also time and a half rules for working on public holidays.
• Sick leave and bereavement leave: usually calculated using RDP (or ADP where RDP is not possible or practicable).

If your payroll system is set up incorrectly, it can create a rolling liability and a large dispute later. It is usually cheaper to fix it early than to argue about it later.

Pay-as-you-go holiday pay (8 percent) - strict limits and double payment risk

Paying annual holiday pay "as you go" (often called 8 percent holiday pay) can look simple, but it is one of the most common employer mistakes. It is only lawful in limited situations and only if all conditions are met.

When pay-as-you-go can be used

In general terms, annual holiday pay may be paid with an employee's pay only where the employment is genuinely:

• Fixed-term for less than 12 months (and the fixed-term must be genuine and lawful), or
• So intermittent or irregular that it is impracticable for the employer to provide 4 weeks of annual holidays in the usual way.

The conditions you must meet

Even if one of the scenarios above applies, pay-as-you-go still must be:

• Agreed in the employment agreement.
• Identifiable as a separate component of pay (not hidden inside a flat hourly rate).
• Paid at not less than 8 percent of the employee's gross earnings.

Can an employer recover wrongly paid holiday pay as an overpayment?

Usually no. This is a major reason employers should take pay-as-you-go seriously. If the employment has become regular and ongoing, the better approach is normally to identify the liability and fix the payroll setup rather than hoping the problem goes away.

Public holidays and alternative holidays - practical points

• Otherwise working day: entitlements often turn on whether the public holiday would otherwise be a working day for that employee. This can be straightforward for fixed rosters and complex for variable work patterns.
• Working a public holiday: there are minimum payment rules, and in many cases the employee is also entitled to an alternative holiday (a paid day off later).
• Do not guess: a quick "rules of thumb" approach is how payroll problems start. The Act requires specific analysis and consistent record keeping.

Sick leave and bereavement leave - common mistake

A frequent error is paying the wrong daily rate, especially where employees have variable hours, allowances, or different rates. Even when the entitlement is clear, the pay calculation can be wrong.

What employers should do (risk control)

• Audit payroll setup: check how your system calculates annual holidays, public holidays, alternative holidays, and leave pay.
• Check casual and fixed-term workers: if there is a regular pattern of work, be careful about calling it casual and paying 8 percent.
• Use clean employment agreements: if you use pay-as-you-go, it must be documented and identifiable on payslips.
• Fix issues early: do not allow incorrect payments to run for years and then try to argue it out when a dispute arises.
• Keep records: leave and holiday pay disputes are evidence-driven. Missing records increases cost and risk.

What employees should do (if you think your leave or pay is wrong)

• Collect payslips: especially where 8 percent holiday pay has been paid.
• Collect rosters and timesheets: patterns of work matter when the employer claims the work was intermittent or irregular.
• Write a timeline: start date, any changes to hours, any changes to pay, and any leave taken.
• Ask questions in writing: request an explanation of how leave balances and holiday pay were calculated.