Annual Leave and Holiday Pay in New Zealand: The Rules Explained

Every employee in New Zealand becomes entitled to 4 weeks of paid annual leave once they have worked for the same employer continuously for 12 months. When leave is taken, it must be paid at the greater of the employee's ordinary weekly pay or their average weekly earnings over the previous 12 months. The Holidays Act 2003 that sets these rules is itself being replaced, so the underlying framework is due to change later this decade.

This is general information about New Zealand employment law, not legal advice. For your own situation, consult a lawyer or your local Community Law centre.

The 4-week entitlement

Under the Holidays Act 2003, an employee becomes entitled to 4 weeks of paid annual leave after 12 months of continuous employment with the same employer, and to a further 4 weeks after every following 12 months. Leave is usually taken at a time agreed between the employee and employer; if they cannot agree, the employer can direct the employee to take leave with at least 14 days' notice, including during a shutdown period such as over Christmas. Leave can also be taken in advance by agreement before the full 12 months is up.

Once an employee is entitled to a year's annual leave, they can ask their employer to cash up up to 1 week of it for money instead of time off. The employer must consider the request in good faith but can decline it, and a request can only be made once the entitlement has actually arisen, not before.

How holiday pay is calculated

When an employee takes annual leave, the employer must pay whichever of the following two figures is higher:

Ordinary weekly pay (OWP): what the employee would ordinarily receive under their employment agreement for a normal working week, including salary or wages, regular allowances that are a normal part of pay, and any overtime that is a regular part of their work. Where earnings vary enough that OWP cannot be reliably worked out this way, it is instead calculated as gross earnings for the 4 weeks before the leave, divided by 4.

Average weekly earnings (AWE): the employee's total gross earnings for the 12 months immediately before the leave is taken, divided by 52.

The employer pays whichever amount is greater. This exists so an employee who regularly works overtime, gets irregular allowances, or has variable hours is not worse off financially for having taken leave instead of working. Some employers use an agreed pay-as-you-go approach instead, paying an extra 8 percent of gross earnings on top of ordinary pay rather than accruing a 4-week entitlement, but this is only allowed for employees on a genuine fixed-term agreement of less than 12 months, or in some casual arrangements: it is not a general substitute for the 4-week entitlement.

The Holidays Act reform: what is changing

The Holidays Act 2003 has long been criticised as difficult for payroll systems to apply correctly, and it is being replaced by a new Employment Leave Bill. The Bill would move both annual leave and sick leave to hours-based accrual: leave would build up from an employee's first day of work, in hours, based on the hours they are contracted to work, rather than arriving as a 4-week lump sum once 12 months have passed. Casual and other additional hours would instead attract an upfront leave compensation payment.

The Bill was introduced in March 2026 and passed its first reading, and the select committee reported back to Parliament on 13 July 2026. It still needs to pass its remaining stages and receive Royal assent, and the Bill provides for a 24-month implementation period after that before the new rules actually take effect, to give employers and payroll providers time to prepare. On the current timeline, the change is unlikely to be in force before roughly 2028. Until it is, the 4-week entitlement and the OWP/AWE calculation described above remain the law.

Related employment topics

Annual leave is separate from your ordinary wages and from time off for a public holiday. See our guide to public holiday pay for how working, or not working, a public holiday is paid. For the rate your ordinary pay must at least meet, see our guide to minimum wage in New Zealand. For the wider picture of New Zealand employment law, visit the employment law hub.