Managing annual holidays

What you must do

As an employer, you must:

• give all your employees at least 4 weeks of paid holidays each year
• be reasonable in considering requests to take annual holidays
• keep accurate records to track annual holiday entitlements and payments.

Keeping records

Annual holiday pay

What you cannot do

You cannot give an employee less than 4 weeks annual holidays each year, even if their employment agreement says so.

How annual holiday entitlement works

Your employees become entitled to a minimum of 4 weeks annual holidays when they have worked continuously for you for 12 months.

You can, however, choose to:

• give employees more than their minimum entitlement of 4 weeks of annual holidays each year – this should be documented in their
• allow employees to take annual holidays before they are entitled to them (in advance).

An employee’s annual holiday entitlement does not expire. The employee remains entitled to their annual holidays until they:

• take the holidays
• cash them up, or

Cashing up annual holidays

• their employment ends, and they are paid out for them.

Final pay

In some cases, you can agree with an employee that they be paid 8% of their gross pay instead of getting paid annual holidays – referred to as ‘pay-as-you-go’ holiday pay. This can only happen if the employee:

• has a of less than 12 months, or
• works so irregularly that it is impossible in practice for you to provide them with 4 weeks’ annual holidays in the normal way.

Paying pay-as-you-go annual holiday payments

Annual holiday pay

Calculating annual holiday entitlements

What constitutes a ‘working week’, and how you calculate an employee’s annual holiday entitlement, will depend on their working arrangement.

Our Holidays Act 2003 guides provide information about leave and holidays entitlements and pay.

Our shorter guide is for employees and employers to help them understand minimum employment entitlements:
Leave and holidays: A guide to employees’ legal entitlements (PDF, 2.1 MB)(external link)

Our longer guide gives detailed, practical guidance for payroll providers and professionals:
Holidays Act 2003 guidance (PDF, 1.8 MB)(external link)

Employees with a predictable work pattern

For employees who work the same hours on the same days each week, annual holiday entitlement is simple to work out. Every 12 months, on their anniversary for annual holidays entitlement, they can take 4 of their working weeks as paid annual holidays.

For example, if an employee works 3 days each week, they can take 12 days of annual holidays. (3 days x 4 weeks = 12 days.) If they work 5 days each week, they can take 20 days of annual holidays.

Some employees have a consistent pattern of work, but it's not the same every week. In this case, you can agree with your employee to work out their annual holiday entitlement in either days or hours. For example, if:

• they work the same total number of hours or days each week, but the number of hours each day or the days worked each week changes – you could agree to work out the annual holiday entitlement in either days or hours
• the total number of days they work each week is the same but the total number of hours changes – you might agree to work out their annual holiday entitlement in days
• the total number of hours they work each week is the same but the total number of days they work changes – you might agree to work out their annual holiday entitlement in hours
• they have a work pattern that is consistent but not based on a 7-day cycle, for example, they work 4 days on and 4 days off – you might agree to define the week by using the longest week in the pattern, or by using an average week based on the pattern or by just referring to the week at the time the annual holiday is taken.

You should discuss the options and their consequences with your employees, in , and help them to decide what’s best for them. The option agreed should be used consistently for that employee unless their situation changes.

If the employee’s work pattern does change, their situation must be reviewed, and their annual holiday entitlement recalculated based on the new work pattern.

Our Holidays Act 2003 guides provide information about leave and holidays entitlements and pay.

Our shorter guide is for employees and employers to help them understand minimum employment entitlements:
Leave and holidays: A guide to employees’ legal entitlements [PDF, 2.1 MB]

Our longer guide gives detailed, practical guidance for payroll providers and professionals:
Holidays Act 2003 guidance [PDF, 1.8 MB]

Employees with an unpredictable work pattern

For some employees, it may not be possible to define what a ‘working week’ looks like in advance – for example, if they have no guaranteed hours, or work to a roster that changes unpredictably each week. If this is the case, you should try to identify with them whether there is a pattern of work that could be used to work out a working week for their annual holiday entitlement. This could be based on:

• the agreed hours in their employment agreement if these are a fair and reasonable reflection of their working week, or
• the days and hours they have actually been working in the weeks leading up to the leave.

Assessing whether your payroll system can comply with the Holidays Act 2003 will help you check that you are in line with legislation and providing employees with at least the minimum leave and holiday pay and entitlements.

Assessing whether your payroll system can comply with the Holidays Act 2003 [PDF, 409 KB]

Holidays and leave decision points [PDF, 226 KB]

Ways that employers can improve compliance with the Holidays Act 2003 [PDF, 293 KB]

When employment ends

When an employee leaves, you must pay them for any unused annual holidays that they are entitled to. This should be paid at the greater rate of their when they finish employment, or their for the 12 months up to the end of the last pay period before employment ended.

If an employee has not yet become entitled to annual holidays or has worked a part-year since their last entitlement anniversary, you must pay them 8% of their total before-tax earnings from the time they started the job, less any amount paid to them for annual holidays taken in advance, or paid on a pay-as-you-go basis.

Final pay

Pay-as-you-go annual holiday payments

How other types of leave affect annual holiday entitlement

Some types of holidays and leave may affect an employee's annual holidays.

Leave without pay

If an employee takes more than a week of unpaid leave at any point during the year:

• the time required before the employee becomes entitled to annual holidays is extended by the amount of unpaid leave taken more than one week. For example, if an employee takes 2 weeks unpaid leave, they become entitled to annual holidays one week after the anniversary of their starting date, or

• you can agree with the employee that taking the unpaid leave will not affect their annual holidays anniversary date, but their average weekly earnings calculation must be adjusted to reflect the number of whole or part weeks greater than one week that the employee was on unpaid leave. For example, if an employee takes 2 weeks unpaid leave during the year, you can agree that the anniversary date doesn’t change and the average weeks earnings for annual holidays pay is calculated based on a 51-week year, instead of 52 weeks.

Leave without pay

Time off without pay while an employee is receiving ACC, on parental leave, or on leave for defence force volunteers protected voluntary military service, does not affect their anniversary date for annual holiday entitlement.

Sick, bereavement and family violence leave

If an employee is about to take annual holidays but before they do, they (or their spouse, partner or dependant) become sick or suffer a bereavement or are affected by family violence, you must allow them to take sick leave or bereavement leave or family violence leave for the relevant period if they are entitled to it.

If an employee is already taking annual holidays and:

• they (or their spouse, partner or dependant) become sick, the employee can take sick leave instead of annual holidays for the relevant period, but only if you agree
• they suffer a bereavement, you must allow them to take bereavement leave instead of annual holidays for the relevant period
• they are affected by family violence, you must allow them to take family violence leave instead of annual holidays for the relevant period.

If an employee has a period off work on ACC, their annual holiday entitlement is calculated as if they were still working.

Public holidays

If an employee is taking annual holidays, during which a public holiday falls on a day they would otherwise have been working, they are entitled to take that day as a public holiday instead of using their annual holidays.

Parental leave

Employees who are on parental leave are still in ‘continuous service’ and entitled to at least four weeks of annual holidays on the anniversary of their employment start date.

Pay for annual holidays that an employee becomes entitled to during parental leave, or in the 12 months after they return from parental leave, is calculated based on average weekly earnings over the 12 months to the end of the last pay period before the annual holidays is taken.

Annual holiday pay

Approving and declining annual holiday requests

Annual holidays (also called ‘annual leave’) can be taken at any time agreed to by you and an employee. You must allow your employees to:

• take annual holidays within 12 months of the date on which they become entitled to them.
• take at least 2 of their 4 weeks of annual holidays at once, if they wish to.

What you can and cannot do

As an employer, you can:

• choose whether or not to agree to an employee taking unpaid leave, or annual holidays in advance if they do not have annual holidays they are entitled to use
• require employees, in specific circumstances, to take annual holidays
• cancel annual holidays that have already been approved, if you have a good reason, or the employee asks you to.

You cannot unreasonably refuse an employee who wants to take annual holidays they're entitled to.

Employer rights and responsibilities

Requests to take annual holidays in advance

Employees can ask to take annual holidays before they are entitled to them (‘in advance’), but you do not have to agree to the request unless there is a relevant clause in their . Employees can ask for annual holidays in advance if they:

• have not completed 12 months of continuous service, or
• have used all of their current entitlement.

When you agree to an employee taking annual holidays in advance, you should make sure they agree in writing that if they leave your employment before, they become entitled to annual holidays, you can recover the overpayment from their final pay.

Final pay

Requiring employees to take annual holidays

You can only require employees to take annual holidays if:

• you cannot reach agreement about when annual holidays (that the employee is entitled to) will be taken, and you give the employee at least 14 days' notice, or
• you regularly close down for a certain period every year (for example, over Christmas) and give the employee at least 14 days’ notice.

An employer cannot require an employee to take annual holidays in advance, except when there is an annual closedown.

Annual closedowns and holidays

Cancelling annual holidays

You or your employee may wish to cancel annual holidays that have already been arranged.

You do not have to agree to a cancellation request – and your employee does not have to agree if you ask them to cancel annual holidays.

Both parties should negotiate in good faith – for example, you could agree:

• to postpone the annual holidays to another time
• to reduce the number of annual holidays taken.

How to resolve problems