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Employment: Getting holiday pay right

Figuring out the right amount of holiday for your employees and paying them for it correctly can be tricky. We worked with Employment New Zealand to pull together some useful tips to ensure you’ve got it right.

Why it’s important

Your employees are an essential part of your business, so when they take holidays and leave, you want to make sure they get paid correctly. Even if you have a payroll system in place, it’s good to check that your systems are working properly and are up to date with the latest legal requirements. 

Review your current systems

The Holidays Act 2003 covers all employees working in New Zealand. The Act outlines specific minimum entitlements to holidays and leave (eg annual leave, public holidays, sick leave) as well as the payments for them. To get it right, you’ll want to work out the correct entitlement – the time away from work, and the payment for that time. This will include using your employee’s current work pattern to calculate their leave or holidays.

Check your end-to-end payroll system:

  • is flexible enough to handle different working arrangements (eg changing employee work schedules)
  • records all relevant time worked and payments made
  • has accurate and up-to-date information.

If an employee’s working arrangements become complex, or if there’s any change in their work patterns, this needs to be reflected in your payroll system. In many cases, an employee’s working patterns, and therefore their pay and holiday leave arrangements, are unique to them.

Paying via payroll system(external link) — Employment New Zealand

Employment New Zealand has a calculator to work out what an employee’s average daily pay should be.

Employment New Zealand has a calculator to work out what an employee’s average daily pay should be.

If you find that you’ve made a mistake in calculating leave, then it’s important to set things right.

First, figure out how much you owe each employee and pay them as soon as possible. Then, you’ll need to contact and pay all employees who have been affected, including current employees and those who have worked for you in the past.

Estimating Holidays Act underpayments [PDF, 370KB](external link) — Employment New Zealand
Recalculating Holidays Act overpayments [PDF, 169KB](external link) — Employment New Zealand

Things to consider

Here are a few things to consider when working out holiday entitlements, pay and systems.

Include your employees

Include your employees when you’re working out leave. If your employees don’t have a regular week or pattern of work, it’s good to talk this through with them. For example, consider employees who:

  • have work hours that change a lot
  • have had permanent or important changes in their working arrangements, such as going part-time
  • receive additional pay on top of their normal wages (such as bonuses, allowances or commission).

Take responsibility

Even if someone from outside your organisation runs your payroll, you are responsible for making sure holiday and leave payments are made correctly. If it turns out an error has been made, be upfront and honest with your employees and set it right as soon as possible.

Be transparent

Be open and transparent about how you’ve calculated entitlements and any back payments. Talk changes through with your employees and keep clear records.

Do you have more questions about holidays and leave?

Do you have more questions about holidays and leave?

Contact Employment New Zealand by phone at 0800 20 90 20 or by email at info@employment.govt.nz.

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