Guide
The 8% holiday pay component in a New Zealand final pay
Updated
The 8% is the single most misunderstood line in a New Zealand final pay, because people assume it replaces their unused annual holidays. Usually it is paid as well as them.
Two separate payments, not one
Employment New Zealand sets out both. Employees must be paid for any remaining annual holidays they are entitled to, as if the leave were taken at the end of employment, at whichever rate is higher of ordinary weekly pay or average weekly earnings. Employees will also get payment of 8% of their gross earnings since their last anniversary date, including other payments made in their final pay, minus any amount already paid for annual holidays taken in advance or on a pay-as-you-go basis (Employment NZ: final pay).
The logic is simple once you see it. The weeks you are entitled to cover the completed years. The 8% covers the part-year you worked since your last anniversary, during which you were accruing but not yet entitled.
If you never reached 12 months
Employment New Zealand states that where an employee has not yet become entitled to annual holidays, the employer must pay 8% of their total before-tax earnings from the time they started the job, less any amount already paid for annual holidays taken in advance or on a pay-as-you-go basis (Employment NZ: managing annual holidays). There is no week-based entitlement to pay out, because entitlement begins at 12 months of continuous employment.
| Your situation | Unused annual holiday weeks | 8% component |
|---|---|---|
| Under 12 months' continuous employment | None to pay out | 8% of gross earnings since you started |
| 12 months or more, some entitled weeks unused | Paid at the greater of ordinary weekly pay or average weekly earnings | 8% of gross earnings since your last anniversary |
| 12 months or more, all entitled leave taken | Nothing left to pay out | 8% of gross earnings since your last anniversary |
| Paid holiday pay as you go all along | None, if the pay-as-you-go arrangement was lawful | 8% reduced by what you were already paid |
Pay-as-you-go is only lawful in two situations
Employment New Zealand states that an employer can agree to pay 8% of gross pay instead of providing annual holidays only where the employee has a fixed-term contract of less than 12 months, or works so irregularly that it is impossible in practice to provide four weeks' annual holidays in the normal way (Employment NZ). If neither applied to you and your payslips show pay-as-you-go holiday pay, that is worth raising.
What counts as gross earnings
Gross earnings for holiday calculations include salary and wages, allowances other than reimbursing allowances, all overtime, piece rates, most commissions and bonuses, payment for annual, public and alternative holidays, payment for sick, bereavement and family violence leave, the cash value of board and lodgings, and the first week of ACC compensation payable by the employer. They exclude reimbursements, weekly ACC compensation the employer does not pay, and true discretionary payments (Employment NZ: calculating holiday and leave pay).
Employment New Zealand adds that true discretionary payments are rare, and that a payment is not discretionary just because the agreement calls it that. If a bonus scheme binds your employer to pay when targets are met, it counts, even if the amount could be zero.