Everyone
Pay-as-you-go annual holiday payments
Some employees can be paid for their annual holidays on a pay-as-you-go basis instead of getting paid for their holiday when they take it. Learn when pay-as-you go can be used and how to calculate it.
Some employees can be paid annual holidays with their pay
In limited circumstances, some employees can be paid holiday pay as ‘pay-as-you-go’. This means they are paid 8% of their gross earnings on top of their pay instead of getting 4 weeks of paid annual holidays each year.
Employees only qualify for pay-as-you-go holiday pay if:
- they work so irregularly or intermittently that it is impracticable for their employer to give them 4 weeks of annual holidays, or
- they are employed on a genuine fixed-term agreement of less than 12 months.
An employer can choose to pay more than 8% pay-as-you-go. They must not pay less than 8%.
Employers must pay pay-as-you-go correctly
To pay pay-as-you-go holidays, employers must:
- make sure the employee’s work situation qualifies them for pay-as-you-go
- make sure the employee has agreed to it in their employment agreement
- calculate the pay-as-you-go holiday pay at a rate of at least 8% of the employee’s gross earnings, and
- make the pay-as-you-go holiday payment an identifiable amount of the employee’s pay. It’s good practice to:
- have the payment as a separate amount in the employee’s employment agreement
- give the employee a payslip and show the payment separately on it
- use a different pay code for the payment if using an electronic payroll system.
Pay-as-you-go for employees with irregular or intermittent work patterns
To qualify for pay-as-you-go holiday pay (if the employee is not on a genuine fixed-term agreement of less than 12 months), the employee’s work pattern must be so irregular or intermittent that it is impracticable to provide 4 weeks of paid annual holidays.
‘Impracticable’ is understood to mean impossible in practice. That does not just mean inconvenient or difficult. It means the employer cannot provide paid time off because:
- they cannot work out what a ‘week’ is for annual holidays, or
- they do not know if or when the employee will next be working.
What is irregular or intermittent employment?
The law does not say what ‘intermittent’ or ‘irregular’ employment means. Generally, people use the word ‘intermittent’ to mean stopping and starting with gaps in between.
Employees may have genuine irregular or intermittent employment if they have:
- no guaranteed hours
- no regular work pattern
- no expectation of ongoing employment
- significant periods without work.
Employers should look at each work situation when deciding if pay-as-you-go holiday pay is appropriate. For example, an employee could have no guaranteed hours but work regularly and continuously, in which case they would probably not qualify for pay-as-you-go.
Employers should also consider:
- if breaks in employment are because the employee took paid or unpaid leave
- if the employee is entitled to sick, bereavement and family violence leave.
In both cases, the employer should carefully consider whether the employee has a work pattern that is not irregular or intermittent.
Pay-as-you-go for fixed-term employment
Pay-as-you-go for fixed-term employment less than 12 months
If an employee is employed on a genuine fixed-term agreement for less than 12 months, they can agree to have:
- 8% of their gross earnings added to their pay each pay period (a pay period is how often someone is paid, for example, every 2 weeks), or
- 8% of their total gross earnings paid out at the end of the fixed term.
There must be a genuine reason based on reasonable grounds for the fixed term. The reason must be recorded in the employment agreement.
Pay-as-you-go holiday pay is an option for employees on fixed-term agreements of less than 12 months because they are not expected to reach the date when they qualify for annual holidays (after 12 months of continuous employment).
Fixed-term employment for 12 months or more, or no genuine reason
Employers must not pay annual holidays as pay-as-you-go if:
- the fixed term is for 12 months or more, or
- there is not a genuine reason for the fixed term.
Employers should avoid paying annual holidays as pay-as-you-go if the fixed term agreement is for less than 12 months but the employment is likely to last longer. By not doing this, employers will avoid paying 8% pay-as-you-go and 4 weeks of annual holidays if the employment continues for more than 12 months.
Moving continuously from one fixed term to another
If an employee moves from one fixed-term arrangement to another with the same employer, they can continue getting pay-as-you-go holiday pay, as long as:
- each fixed term is for less than 12 months
- there is a genuine reason for each fixed-term arrangement, and
- the employer and employee agree to it in the employment agreement.
There does not need to be a break in employment.
How to calculate pay-as-you-go annual holiday pay
To calculate 8% pay-as-you-go:
- take the employee’s gross earnings for the pay period
- multiply that figure by 0.08
- add this to the gross earnings to get the employee’s total pay.
Hemi is on a fixed-term employment agreement for 6 months. He has agreed with his employer to be paid holidays as 8% pay-as-you-go with his pay.
Hemi works 15 hours a week and is paid $25 an hour. He is paid every 2 weeks. Last week, Hemi worked 3 hours overtime, which is paid at time-and-a-half.
To work out Hemi’s pay, his employer first needs to calculate Hemi’s gross earnings for the pay period (2 weeks). Hemi’s gross earnings for the 2 weeks are:
- his pay: 15 x $25 = $375. For 2 weeks, this totals $750
- his overtime pay: 3 x $37.50 = $112.50
- his gross earnings: $750 + $112.50 = $862.50
Hemi’s employer then calculates 8% of Hemi’s gross earnings for his pay-as-you-go holidays:
- $862.50 x 0.08 = $69
To get Hemi’s total gross earnings for the fortnight, including the 8% pay-as-you-go, his employer adds $69 + $862.50.
Hemi’s total gross earnings including 8% pay-as-you-go are $931.50.
Regularly review pay-as-you-go arrangements
Employers who are paying pay-as-you-go should regularly review the work situation to make sure the employee still qualifies for it.
Employers with employees who work irregularly or intermittently should regularly review those employees’ work patterns to see if the work has become regular or ongoing.
Employers with employees on fixed-term agreements of less than 12 months should regularly review the arrangements to check the employment will still end when expected.
If the work situation has changed and the employee no longer qualifies for pay-as-you-go, the employee and employer should enter into a new employment agreement that:
- gives the employee their entitlement to 4 weeks of annual holidays at the end of 12 months of continuous employment, and
- removes the pay-as-you-go payment.
Annual holidays after pay-as-you-go ends
Moving from fixed-term to permanent employment
If an employee starts out on a fixed term of less than 12 months and later gets a permanent job with the same employer, they will qualify for 4 weeks of paid annual holidays 12 months after they started work. If they have had more than 1 fixed-term agreement, 12 months is from the start of the final fixed term.
When the employee takes annual holidays, their employer can reduce their annual holiday pay by the amount already paid as pay-as-you-go.
There are several ways an employee’s annual holiday pay can be reduced. It’s good practice for the employer and employee to agree how this will happen. For example:
- they could agree that the employee does not get any holiday pay when they take annual holidays until the amount already paid is reached, or
- they could agree the employee is paid annual holidays at a reduced rate until the amount already paid is reached.
Sophie started her job on a 9-month fixed-term contract to cover someone who was away on parental leave. Her contract started on 30 September 2023 and was due to end on 30 June 2024. Sophie became a permanent employee on 31 March 2024 after the person she was covering decided not to return to work. Her employer stopped the pay-as-you-go payments on 31 March.
Sophie is entitled to 4 weeks of annual holidays on 30 September 2024 – 12 months after her fixed-term agreement started.
Sophie takes 1 week of annual holidays on 1 July 2024 (her employer has agreed she can take holidays in advance). She agrees with her employer that her holiday pay will be paid at a reduced rate for this week of annual holidays — and for future periods of annual holidays — until the amount she’s already been paid as pay-as-you-go is reached.
Sophie’s employer works out her AWE over the time she’s been employed. They also work out her OWP. They take the greater amount, and then reduce it by the amount they agreed to.
Moving from irregular or intermittent employment to regular or ongoing employment
If an employee’s job has become regular or ongoing, there are 2 options for working out their holiday entitlement and pay.
Option 1
The employee gets 4 weeks of paid annual holidays 12 months after their employment changed and their pay-as-you-go payments stopped.
If the employee takes annual holidays before they reach 12 months, the average weekly earnings (AWE) calculation for annual holiday pay goes back to the date they stopped getting pay-as-you-go. Only calculate AWE over the number of weeks the employee has had regular or ongoing employment.
Option 2
The employee qualifies for 4 weeks of annual holidays 12 months after they started work.
The employer calculates their holiday pay the same way as they would for an employee moving from fixed-term to permanent employment. This means:
- the 52-week period for calculating AWE includes the time the employee was getting pay-as-you-go, and
- the amount already paid can be deducted from the employee’s holiday pay, as long as the pay-as-you-go payments stopped as soon as their employment changed.
Andre started off working irregular hours. His hours were so irregular that it was impossible for his employer to give him 4 weeks of annual holidays.
His employment became regular on 17 June 2024. His employer stopped his pay-as-you-go payments that same day. Andre is entitled to 4 weeks of annual holidays on 17 June 2025 — 12 months after his employment became regular.
Andre takes 1 week of annual holidays at Christmas (his employer has agreed he can take annual holidays in advance). He will start his holidays on 23 December 2024.
To calculate Andre’s holiday pay, his employer works out his average weekly earnings (AWE) over the period he worked between 17 June (the date his pay-as-you-go payments stopped) and 20 December (the end of the last pay period before he went on holiday).
His employer must then compare Andre’s AWE to his OWP and pay the greater amount. For more information about calculating annual holiday pay, visit:
More Holidays Act guidance
Our Holidays Act 2003 guides provide information about leave and holidays entitlements and pay.
Our shorter guide is for employees and employers to help them understand minimum employment entitlements:
Leave and holidays: A guide to employees’ legal entitlements [PDF, 2.1 MB]
Our longer guide gives detailed, practical guidance targeted towards payroll providers and professionals: