Holiday Pay Under the Holidays Act 2003
The Holidays Act 2003 is one of the most misunderstood pieces of employment law in NZ. Even large companies have been caught underpaying, resulting in millions in back-pay obligations.
The Golden Rule
Annual leave must be paid at the greater of: 1. Ordinary Weekly Pay (OWP) — what the employee normally earns in a week, including regular allowances 2. Average Weekly Earnings (AWE) — total gross earnings over the last 52 weeks ÷ 52
This means that if an employee has worked significant overtime during the year, their leave rate must reflect that — not just their base wage.
What's Included in Gross Earnings (for AWE)
- Regular wages and salary
- Regular overtime (if it's a consistent pattern)
- Allowances that are regular and expected
- Commission if it's part of regular remuneration
Excluded: genuine one-off bonuses, reimbursements, penal rates for truly occasional overtime.
Casual Employees
Casual employees (no guaranteed hours) accrue leave differently: - They earn 8% of gross earnings as annual leave loading, typically included in each pay - If 8% is included in hourly rate, it must be shown separately on payslips
The Risk of Getting It Wrong
Underpaying leave is a breach of the Employment Relations Act. MBIE can audit any employer, and back-pay must be paid with interest. Use Employment NZ's tools to verify your calculations.