Employees are entitled to four weeks of annual leave for each year of continuous employment.

Wherever possible, the definition of a week for annual leave should be agreed upon between you and your employee and recorded in the employment agreement. However, if you have an employee who works variable hours/days, determining what a week is for them can be complicated because it's constantly changing.

If your payroll system holds annual leave balances in hours or days, then, to remain compliant, these balances need to be recalculated on an ongoing basis to reflect the employee's ever-changing week. This can be a complex and time-consuming task to manage. However, when annual leave is held in weeks, no recalculation is necessary because the underlying balance in weeks remains constant regardless of the variability in working days or hours.

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Only two types of employees can be paid their annual holiday pay as part of their regular pay instead of receiving their four weeks of annual leave, i.e. 8 per cent PAYG holiday pay. They are either on a genuine fixed-term contract lasting less than 12 months or their work is so intermittent or irregular that it is impracticable to provide four weeks' annual leave.

A common cause of non-compliance is when these employees aren't regularly reviewed to check if they continue to qualify to be paid PAYG holiday pay. If the fixed term is extended to more than 12 months, or if their work pattern changes to become regular, the employee will no longer qualify to PAYG holiday pay and they must move to receive four weeks of annual leave.

Unfortunately, payroll is one of the things you can't just set and forget, so it's important to review your payroll settings regularly.

Visit the Employment New Zealand website for more information.

There are special rules around paying out (or cashing up) annual leave, so it pays to check these closely.

Employees can request to cash up to one week (of their four weeks minimum annual leave entitlement) in each entitlement year unless the organisation has a business policy stating otherwise. An employee's old entitlement can't be paid out from previous periods nor can they cash up annual leave they haven't yet become entitled to until their next yearly anniversary.

These rules don't apply to any contractual annual leave entitlement over and above the employee's minimum four weeks, e.g. a fifth week may be cashed up by agreement. For more information, visit Employment New Zealand.

Visit the Employment New Zealand website for more information.

The term ‘casual’ doesn't appear anywhere in the Holidays Act.

All employees, regardless of employment status, are entitled to receive sick leave (and bereavement leave and family violence leave) if they meet the required criteria:

a) they have six months' current continuous employment, or
b) they have worked for six months for an average of 10 hours per week and at least one hour every week or 40 hours every month.

Even if your employee’s work pattern varies in future and they no longer meet the qualifying criteria, they can still use their existing unused sick leave balance which doesn't expire. Up to 10 days of unused sick leave must be carried over to a maximum of 20 days’ current entitlement in any year.

Consider running regular reports from your payroll system to help you determine if your casual employees might now qualify for sick leave, as failing to do so runs the risk of non-compliance.

Visit the Employment New Zealand website for more information.

There is a special rule that requires employees to be paid for public holidays which fall after their employment has ended (i.e. after their termination date). This means that the employee's termination date is notionally extended by any entitled annual leave not taken, e.g. if three weeks of annual leave is owed, then it will be added on to the employee's termination date.

The employee is entitled to be paid for any public holidays that fall within their termination date and the notionally extended date, provided they would normally have worked on the day that the public holiday falls on. This rule isn't always followed, so it's best to check that your payroll termination processes are up to date.

Visit the Employment New Zealand website for more information.

If an employee takes a continuous period of leave without pay for more than one week (not including unpaid sick, bereavement, or family violence leave), there are two approaches:

1. Their annual leave anniversary date ( the date they become entitled to annual leave, usually 12 months on their work anniversary) moves out by the amount of unpaid leave taken (not including the first week); or
2. You can agree with the employee to keep their annual leave anniversary date but reduce the divisor for calculating average weekly earnings (the payment calculation for annual leave) by the number of weeks or part weeks greater than one week that they were on leave without pay.

You should check that your payroll system is able to handle requests for extended leave without pay depending on either approach your business decides on.