How Annual Leave and Holiday Pay Work

During the first year of employment an employee has no annual leave due. Most employers still allow their employees to take some annual leave during this period, but the leave is essentially taken in advance. If the employee leaves before they have been employed for a year they are paid out Holiday Pay in their final pay, which is typically 8% of their earnings. The value of any leave they have taken in advance would then get deducted from their final pay.

As the year progresses and the employee earns more the Holiday Pay balance increases. 

When the employee reaches their employment anniversary they become entitled to annual leave:

• 4 weeks of leave become due and are added to the employee's Current Leave Due balance
• The Holiday Pay Accrued and Estimated Leave in Advance balances are set to zero

The process then starts again with Holiday Pay accumulating until their next leave anniversary.

At any time an employee is owed two separate amounts - Holiday Pay and Current Leave Due. If the employee leaves during the second year they will be paid out the Holiday Pay for that part year, and any Current Leave Due. There is a good example of this on the MBIE website.

Holiday Pay is typically 8% of gross earnings and is shown as a dollar amount. Current Leave Due is shown in weeks, days or hours and its value is based on the employee's recent work pattern.

Employees can view their leave balances from the Employee Portal.

The fields on the leave tab for an employee represent the 

Holiday Earnings - The employees gross earnings since their last leave anniversary, excluding any earnings that aren't eligible for Holiday Pay.

Holiday Pay Accrued - Typically 8% of the employee's earnings since their employment start or last leave anniversary. This will be added to a final pay.

Current Leave Due - Annual leave due less annual leave taken since the last anniversary. This is the leave balance that will be paid out in a final pay, along with holiday pay.

Estimated Leave in Advance - Found under the info icon on Holiday Pay, this balance is an estimate of how much leave in advance the employee could take for the current entitlement year.

Note - Annual Leave is included in gross earnings and so when it is paid to an employee it will increase their Holiday Pay balance. This may seem like you're paying for holidays twice but if you consider that when an employee takes annual leave they are still employed and so continue to accrue annual leave, it makes sense.