How annual leave pay is calculated in New Zealand, worked through step by step
Annual leave pay in New Zealand is calculated as whichever is higher of ordinary weekly pay (OWP) or average weekly earnings (AWE), under section 21 of the Holidays Act 2003 (New Zealand Legislation, retrieved 9 September 2026). This is an explainer, not an interactive tool: it works through both formulas step by step so you can check your own payslip against Employment New Zealand's official guidance (retrieved 9 September 2026).
The two formulas, side by side
Every time you take annual holidays, your employer must work out both figures and pay you the greater one. Neither formula is a default; the comparison is mandatory under the Act (Employment New Zealand, Annual holiday pay, retrieved 9 September 2026).
| Formula | What it measures | When it usually wins |
|---|---|---|
| Ordinary weekly pay (OWP) | Your normal weekly pay under your employment agreement, including regular allowances and regular overtime | Steady, predictable pay with no recent pay rise or big irregular payments |
| Average weekly earnings (AWE) | 1/52 of your gross earnings over the 12 months before the leave, or however many weeks you've worked if under a year | Variable income, commission, irregular overtime, or a recent pay increase that hasn't flowed through fully |
(Employment New Zealand, Annual holiday pay, retrieved 9 September 2026.)
What counts in ordinary weekly pay
OWP is the amount you receive under your employment agreement for an ordinary working week, including payments that regularly relate to the work you do each week. Employment New Zealand (retrieved 9 September 2026) lists what is and is not included.
| Included in OWP | Excluded from OWP |
|---|---|
| Regular salary or wages | Irregular or one-off payments, such as bonuses |
| Regular allowances, like a shift allowance | Discretionary payments |
| Regular productivity or incentive payments, including commission or piece rates | Employer superannuation contributions |
| The cash value of board or lodgings | Reimbursements for actual expenses |
| Regular overtime |
(Employment New Zealand, Annual holiday pay, retrieved 9 September 2026.)
How is annual leave pay calculated in NZ?
Your employer works out both your ordinary weekly pay and your average weekly earnings for the relevant period, then pays you whichever figure is higher for each week of annual holidays taken, under section 21 of the Holidays Act 2003 (New Zealand Legislation, retrieved 9 September 2026). Neither formula is optional; the comparison has to happen every time.
What is the 8% annual holiday pay rule?
The 8% rule is a separate payment method, not part of the standard OWP/AWE comparison. It applies only where an employee is on a fixed-term agreement under 12 months, or works so irregularly that providing 4 weeks off in the normal way is impossible, under section 28 of the Holidays Act 2003 (New Zealand Legislation, retrieved 9 September 2026). In that case, 8% of gross earnings is paid with each pay cycle instead of holidays being taken as time off.
Do casual employees get annual leave pay?
Genuinely casual employees who work so irregularly that 4 weeks of scheduled leave is impractical are usually paid 8% pay-as-you-go with each pay, under section 28 of the Holidays Act 2003. A casual employee who in fact works a regular, predictable pattern is not "genuinely casual" for this purpose and should instead build up the standard 4-week entitlement, calculated the same OWP/AWE way as any other employee (Employment New Zealand, Managing annual holidays, retrieved 9 September 2026).
What's the difference between "ordinary weekly pay" and "average weekly earnings"?
Ordinary weekly pay looks forward from your normal employment agreement pay rate at the time leave is taken; average weekly earnings looks backward across your last 12 months of actual gross earnings, divided by 52. Employment New Zealand (retrieved 9 September 2026) confirms the two use different reference periods and different inclusion rules, which is exactly why the Act requires both to be calculated and the higher one paid.
How is annual leave calculated when I resign?
If you resign after your last anniversary and hold an unused 4-week balance, it is paid at the higher of OWP or AWE, exactly as if you had taken the leave while employed. Any leave accruing since your last anniversary but not yet vested is instead paid at 8% of your gross earnings for that shorter period, under sections 23 to 25 of the Holidays Act 2003 (New Zealand Legislation, retrieved 9 September 2026). See our annual leave entitlement guide for how the two portions differ.
What counts as "gross earnings" for the average weekly earnings calculation?
Gross earnings for Holidays Act purposes means all payments your employer is required to make under your employment agreement for the period being assessed, including salary or wages, most allowances, commission, piece rates, overtime and the cash value of board or lodgings (Employment New Zealand, Calculating holiday and leave pay, retrieved 9 September 2026). It is a specific legal definition, not the same as "gross pay" in everyday payroll language, and it excludes most discretionary or one-off payments.
Does a recent pay rise change my annual leave pay?
It can, and this is exactly where the OWP/AWE comparison matters most. If you received a pay rise shortly before taking leave, your OWP (based on your current agreed rate) will usually be higher than your AWE (based on the last 12 months, most of which was at the old, lower rate), so OWP should be used. If your income has been unusually high in the last 12 months, for example through overtime or a bonus period, AWE may be higher instead (Employment New Zealand, Annual holiday pay, retrieved 9 September 2026).
What is relevant daily pay, and is it the same thing?
No. Relevant daily pay (RDP) and average daily pay (ADP) are separate calculations used for public holidays, alternative holidays, sick leave, bereavement leave and family violence leave, not for annual holidays. Annual holidays always use the weekly OWP/AWE comparison; RDP and ADP are daily figures used elsewhere (Employment New Zealand, Calculating holiday and leave pay, retrieved 9 September 2026). Our public holiday pay guide covers RDP and ADP in full.
Can my employer just use a payroll system's default calculation?
Payroll software still has to apply the OWP/AWE comparison correctly for each employee, and MBIE's Holidays Act guidance exists precisely because many payroll systems have historically miscalculated this comparison, particularly for employees with variable hours or irregular pay. If you suspect an underpayment, Employment New Zealand's guidance (retrieved 9 September 2026) is the reference document to check your employer's calculation against.
Does a bonus count toward my average weekly earnings?
Only if it is not discretionary. A guaranteed, contractual bonus that is part of your normal pay forms part of gross earnings and can lift your average weekly earnings; a genuinely discretionary bonus, paid at the employer's choice with no contractual entitlement, is excluded from both OWP and AWE calculations (Employment New Zealand, Calculating holiday and leave pay, retrieved 9 September 2026).
What if I've worked for my employer for less than 12 months?
Average weekly earnings is calculated over however many weeks you have actually worked, divided by that number of weeks, rather than a full 12-month average, under section 21 of the Holidays Act 2003 (New Zealand Legislation, retrieved 9 September 2026). This matters most for someone who has just crossed the 12-month entitlement threshold in our annual leave entitlement guide, since their AWE figure will only reflect that first year.
Can my employer pay me less than my ordinary weekly pay for annual leave?
No, not if OWP is the higher of the two figures. An employer must pay whichever of OWP or AWE is higher for the leave taken; paying only AWE when OWP is higher, or vice versa, is a Holidays Act breach an employee can raise with Employment New Zealand directly with their employer, or escalate through a formal dispute if needed.
Does redundancy or a termination payment affect my average weekly earnings?
Redundancy compensation itself is not part of gross earnings for annual leave purposes, but any final pay component that is genuinely gross earnings, such as unpaid ordinary wages owed, does count. Our redundancy pay in NZ guide sets out what redundancy compensation itself covers, separately from any annual leave payout calculated using OWP or AWE, and Jobseeker Support covers the income support available once both are used up.
Do allowances always count toward ordinary weekly pay?
Only regular allowances count, such as a recurring shift or on-call allowance that is a normal part of your weekly pay. A one-off or irregular allowance, or a reimbursement for an actual expense you incurred, is excluded from OWP under the Holidays Act 2003's definition (Employment New Zealand, Annual holiday pay, retrieved 9 September 2026).
When each calculation is used
The table below is a quick reference for which formula is relevant to which situation.
| Situation | Calculation used | Source |
|---|---|---|
| Taking annual holidays, standard case | Higher of OWP or AWE | Holidays Act 2003, s21 |
| Annual holidays taken in advance | Higher of OWP or AWE at the time taken | Holidays Act 2003, s22 |
| Final pay, entitlement already vested | Higher of OWP or AWE | Holidays Act 2003, s24 |
| Final pay, entitlement not yet vested | 8% of gross earnings for the period worked | Holidays Act 2003, s23, s25 |
| Fixed-term under 12 months or genuinely irregular work | 8% pay-as-you-go with each pay | Holidays Act 2003, s28 |
| Public holidays, sick leave, bereavement leave | Relevant daily pay or average daily pay (a separate calculation) | Holidays Act 2003, ss49 to 50, 63 |
(Holidays Act 2003; Employment New Zealand, Calculating holiday and leave pay, retrieved 9 September 2026.)
What's changing
Leave pay calculations are one of the biggest changes under the Employment Leave Act 2026, due to replace the Holidays Act from 6 August 2028. Every leave type, including annual leave, sick leave and bereavement leave, will move to a single hourly-rate calculation, based on an employee's lowest hourly rate payable for the shift the leave is taken, rather than the current OWP/AWE comparison (Ministry of Business, Innovation and Employment, Key changes to the employment leave system, retrieved 9 September 2026). See our employment leave law changes page for the full comparison table.
This calculation matters most when you are working out what you are owed on resignation or redundancy; our guides to redundancy pay in NZ, notice periods in NZ and the first 30 days after redundancy cover the payments that come alongside your final annual leave payout, and the leave entitlements hub links every guide in this cluster, including annual leave entitlement, cashing out annual leave, long service leave and public holiday pay. If you have been off work sick rather than on leave, sick leave entitlement in NZ and how long you can be off work sick use the related relevant-daily-pay calculation, not this one. If income during a period off work is the real concern, comparing income protection cover is the next practical step once statutory leave runs out.
Financial advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). QuoteHub is a trading name. Start a free comparison if you want a licensed adviser to review your own cover.
Adviser's view
QuoteHub's read is that the comparison, not the formula, is the part employers and employees both skip: the Act does not let you pick whichever calculation is easier, it requires the higher of the two every single time, and for anyone with irregular commission, overtime or allowances that comparison changes their payout by hundreds of dollars a year.
Compare your cover with a licensed NZ adviser · free, no obligation.
Cite this page QuoteHub NZ (2026). How Annual Leave Is Calculated in NZ: Explained. www.quotehub.co.nz/guides/leave-entitlements/annual-leave-calculator-nz. Updated 2026-09-09.
References
- Holidays Act 2003, section 21 (Calculation of annual holiday pay)
- Holidays Act 2003, sections 23 to 25 (Pay on employment ending)
- Holidays Act 2003, section 28 (Pay-as-you-go annual holiday pay)
- Employment New Zealand: Annual holiday pay
- Employment New Zealand: Calculating holiday and leave pay
- Employment New Zealand: Managing annual holidays
- Employment New Zealand: Holidays Act 2003 guidance (PDF)
- Ministry of Business, Innovation and Employment: Key changes to the employment leave system (PDF)
Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, Guides.