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Paying via payroll system

How employers and payroll teams can check that their payroll system complies with minimum leave entitlements and payments in the Holidays Act 2003.

The Holidays Act 2003 provides specific minimum leave entitlements and payments that must be met by New Zealand employers. 

All payroll systems must be able to make all the calculations in the Holidays Act 2003. A payroll system must consider these every time leave or holidays are taken, and must:

  • be able to respond to how the business operates
  • record all relevant time worked and pay paid
  • have accurate information.

If there is complexity or any change in employee work patterns, this needs to be reflected in the system. In many cases, some employee’s working patterns and pay are unique to their colleagues.

Calculating annual holiday payments has examples on how to calculate leave payments.

For more information on checking if your system is in line with legislation and that it provides employees with at least the minimum leave entitlement and minimum pay for this leave, view the checklist for assessing your payroll system. It includes the following checklist:

Holidays Act entitlements

Check the payroll system is providing the correct entitlements to:

  • annual holidays
  • alternative holidays
  • on-call employees
  • sick and bereavement leave
  • casual employees.

Formulas and definitions

Check the payroll system is using correct formulas and definitions of:

  • ordinary weekly pay
  • otherwise working days
  • relevant payments for gross earnings
  • all regular additional contractual payments
  • using relevant daily pay or average daily pay
  • annual gross earnings
  • the greater of average weekly earnings and ordinary weekly pay.

Recording employee’s work patterns and remuneration

Check the payroll system is accurately recording each employee’s work pattern:

  • record of actual hours worked each day
  • record of actual days worked and/or paid
  • inclusion of additional payments
  • inclusion of overtime hours and payments.

Check the payroll system is calculating remuneration correctly:

  • interpretation of employment agreements
  • paid leave post parental leave.

Check the payroll system can carry out the necessary functions:

  • appropriate formulas
  • paying entitlements on termination
  • closedown periods
  • record of cashed up payments.

The Labour Inspectorate uses the following questions as a starting point for employer audits, that are checking for Holidays Act compliance.


  1. Were accurate and complete wages and time, and holiday and leave, records kept and used in calculations?
  2. Was the correct Gross Earnings figure used?

Annual Holidays

  1. Did employees receive what appropriately constituted 4 weeks holiday entitlement for each year of work?
  2. Was the deduction of time from the entitlement for the holiday taken appropriately calculated based on the time taken and what appropriately constitutes a week for the employee?
  3. Was Average Weekly Earnings (AWE) vs Ordinary Weekly Pay (OWP) used for the holiday pay calculation? Was the calculation correct? Was the greater rate applied?
  4. Was Pay As You Go – PAYG (8%) used? Was the calculation correct?
  5. Were notional public holidays accounted for on termination?
  6. Was the 8% accounted for on termination?

Bereavement leave, alternative holidays, public holidays and sick leave (BAPS)

  1. Was Relevant Daily Pay (RDP) paid if appropriate?
  2. Was Relevant Daily Pay/Average Daily Pay (ADP) used for unworked Public Holidays, Sick Leave, Bereavement Leave and Alternate Holidays? Was the calculation correct?

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