How Annual Leave Pay Is Calculated in New Zealand

The higher of two weekly amounts wins

Annual holiday pay is not automatically the employee’s base hourly rate multiplied by booked hours. For all or part of an annual-holiday entitlement, payroll compares ordinary weekly pay (OWP) at the start of the holiday with average weekly earnings (AWE) over the relevant previous 12 months.

The employee must receive at least the greater result. This comparison protects someone whose ordinary week has recently become more valuable and someone whose 12-month average is higher because regular earnings varied.

Ordinary weekly pay includes regular earnings

OWP is what the employee normally receives under the employment agreement for an ordinary working week. It can include regular salary or wages, regular allowances, regular overtime and regular productivity or commission payments connected with the weekly work.

One-off or irregular payments are generally treated differently. When OWP cannot be identified directly, the current rules provide a formula based on relevant gross earnings over the preceding 4 weeks, after specified irregular amounts are removed.

Related: annual leave entitlements Related: annual leave payout final pay Related: public holidays during annual leave

Average weekly earnings look back over 12 months

AWE generally takes gross earnings for the 12 months up to the end of the last pay period before the holiday and divides them by 52. Gross earnings have a legal meaning, so it is safer to use payroll records than to add only base wages from bank deposits.

Suppose Hana’s OWP is $1,180 and her AWE is $1,245. For one week of annual holidays, the minimum payment is $1,245 before deductions because AWE is higher. If OWP were $1,300 instead, the minimum would be $1,300.

Variable hours are where mistakes often appear

A worker whose shifts vary should not automatically be paid for the shortest possible shift on every leave day. The employer still needs to define the working week fairly and perform the OWP-versus-AWE comparison.

Another common mistake is using average daily pay for annual holidays. Average daily pay and relevant daily pay belong to other day-based calculations. Annual holidays use the weekly OWP and AWE framework under the current rules.

Ask payroll for the two numbers

Before the holiday, ask which earnings were included in OWP, what 12-month gross amount produced AWE, and which result was higher. Annual holiday pay is normally due before the holiday begins unless the employee has agreed in writing to receive it in the usual pay cycle.

Keep the explanation with the payslip, particularly after a pay rise, a change of hours, regular overtime or commission. These calculation rules remain current until the Employment Leave Act takes effect on 6 August 2028.