Final pay

When an employee stops working for an employer, their last pay must include their final wages, all the holiday pay they’re entitled to, and any other payments owing.

Employee rights

The final pay must be paid on or before the pay day of the final pay period – this might be after the employee’s last day of work.

The employer must pay:

  • until the end of the notice period, if the employee has given the right amount of notice
  • for all the hours worked since the last pay until the end of employment
  • for all , and owed
  • any additional lump sum or other payments owing – these may be included in the employment agreement or negotiated as part of a leaving package.

Creating an employment agreement

When employees give the right amount of notice

The employment agreement will include how much notice an employee needs to give their employer when they want to leave the job.

Giving notice

If an employee has given the right amount of notice, their employer must pay them to the end of their notice period.

Their employer can ask the employee not to work their full notice period, but only if the employee:

  • agrees to this, or
  • have a clause in their employment agreement that says they can be paid instead of working their notice period.

Even if the employee agrees not to work for some or all the notice period, their employer must still pay them for the full notice period. If the employee asks their employer to waive all or some of the notice period, and their employer agrees, the employee will only get paid for the part of the notice period they actually worked.

When employees do not give the right amount of notice

If an employee gives their employer less than the amount of notice in their employment agreement, they only have to pay the employee for the days they actually worked.


Leave and holiday payments in final pay

Employees can sometimes be entitled to be paid for public holidays that fall after their last day at work. To work out whether the employee is entitled to be paid public holidays that happen after their employment has ended, their employer will treat any unused annual holidays that they are entitled to as if they were taking it immediately after their last day of employment.

If a public holiday falls within this period:

  • the employee must be paid for it if it falls on a day that they usually would have worked if they were still employed
  • the annual holiday is extended by one day for each public holiday that they were entitled to be paid for – this extended period may have more public holidays, which they may also need to be paid for. This can happen if:
      • they have worked for the employer for at least 12 months and are entitled to annual holidays, and
      • they have unused annual holidays they are entitled to at the time their employment ends.

Leave and holiday pay(external link)

Tara works Monday to Friday. On her last day of work, Friday 22 December, she has 5 days of annual leave entitlement left.

These 5 days of leave are added on to her end date, which makes her official last day of work Friday 29 December. Two public holidays fall within this period (Christmas Day and Boxing Day), so she must be paid for these public holidays.

The 2 days’ annual leave which would have covered Christmas Day and Boxing Day are then added on to Monday and Tuesday of the following week. This creates an extended period which ends on 2 January. This extended period includes the public holidays on 1 and 2 January, so these public holidays must also be treated and paid as public holidays. The final 2 annual holidays are then "taken" on 3 and 4 January.

In her final pay, Tara must be paid for 5 days of annual leave and 4 public holidays.

Annual holidays

How much an employee gets paid for annual holidays in their final pay depends on how long they have been working for their employer.

Annual holiday pay

Pay as you go annual holidays payment

Employees will get an annual holiday payment of 8% of their gross earnings, less any amount they have already been paid for:

  • annual holidays taken in advance
  • annual holidays on a pay as you go basis.

The employee’s gross earnings are everything they have earned since they started with their employer, including any other payments in their final pay.

Employees must be paid for any remaining annual holidays that they’re entitled to. This is paid as if the leave is taken at the end of your 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 they have already been paid for:

  • annual holidays taken in advance
  • annual holidays on a pay as you go basis.

If an employee worked "keeping in touch" days while on parental leave, but is not returning to work, their gross earnings for calculating annual holiday payments in their final pay does not include their “keeping in touch” payments.

This is because if they do not return to work after parental leave, their last day of work was the day before they started their parental leave.

Alternative holidays

If an employee has worked a public holiday and is owed an alternative holiday, then they must be paid the relevant daily pay or average daily pay (if applicable) for their last day of work – regardless of the rate of pay at the time they earned the alternative holiday.

Alternative holidays do not affect the employee’s end date for working out pay for public holidays.

Sick and bereavement leave payments

There is no legal entitlement for unused sick or bereavement leaves to be paid out when they leave an employer. If an employment agreement required the payment of unused sick leave, the employer would have to comply with the agreement, or an employer could choose to make such a payment.

If an employee leaves their job after time off work on ACC, their employer must pay any outstanding annual holidays in their final pay based on the higher of:

  • their average weekly earnings for the 12 months before their end date, or
  • their ordinary weekly pay.

If they have not been paid for over a year, their average weekly pay will be zero, so the employer must use the employee’s ordinary weekly pay to calculate the annual holiday component of their final pay.

The employee’s ordinary weekly pay may be in their employment agreement. If there is nothing specified in the employment agreement, the employer will use the pattern of work and payment from when they were last working to decide what the ordinary weekly pay is.

For example, an employee who works 40 hours a week at an hourly rate of $30 per hour would have an ordinary weekly pay of $1200 – despite being off work on ACC for over a year.

If it is genuinely not possible to work out ordinary weekly pay (for example, if they have variable and unpredictable hours of work), the 4 week average formula is applied to calculate the ordinary weekly pay. This formula is an average of the earnings in the 4 weeks before the end date, so if the employee has been off work for more than 4 weeks, this would equal zero. In this case, the employee has an entitlement to their unused annual holidays but will not get paid anything for it.

If you think your final pay is wrong

If you think there's a problem with your final pay, first check with your employer. If that does not resolve the problem, or you want advice, call us on 0800 20 90 20 or email us.

Contact us

Termination pay flowchart [PDF, 785 KB]

Ted has worked for his employer for 1 year and 1 month. His last day of employment is 12 May and the last date he became entitled to annual holidays was 12 April.

Ted took a week’s annual holidays in April and so has 3 weeks of annual holiday entitlement left on 12 May. Ted also has 2 alternative holidays from working on public holidays that he has not taken.

Ted’s final pay is made up of:

  • his pay for the period worked since the previous pay period until and including 12 May
  • payment for his remaining 3 weeks of annual holiday entitlement, at the rate of the greater of ordinary weekly earnings or average weekly earnings
  • payment for the 2 alternative holidays at relevant daily pay (or average daily pay)
  • payment of the amount of 8% of gross earnings for the period between 12 April and 12 May. Ted's 3 weeks of unused holiday and the value of the 2 alternative holidays are included in gross earnings for the 8% calculation.

Jason finishes work on Friday 16 October. Jason has been paid up to Tuesday 6 October. He has 3 alternative holidays owed and is entitled to 4 weeks paid annual holidays. He last became entitled to annual leave on 25 June.

Jason’s final payment is made up of:

  • his pay for the period worked since the previous pay period (8 days’ pay for Wednesday 10 October through to Friday 16 October)
  • payment of 4 week annual holiday pay calculated at the rate of the greater of ordinary weekly pay or average weekly earnings
  • payment for his 3 unused alternative holidays at the rate of relevant daily pay or average daily pay (if applicable)
  • an additional day’s payment for Labour Day (which falls on Monday 24 October) at relevant daily pay or average daily pay (if applicable). This is because it falls during the 4 week annual holidays extension added to the end of his employment to reflect annual holidays entitlement owing
  • 8% of his gross earnings since 25 June, his last anniversary date.

These gross earnings include:

  • the 4 week annual holiday paid out
  • the payment for the alternative holidays
  • the payment for the public holiday.
  • Published:
  • Last modified:
  • Written for: Everyone
  • Share this page:
  • Print this page: