Days in Lieu in New Zealand: Employer Rules Explained

Public holidays can create real headaches for employers. A common problem is working out when an employee is entitled to a day in lieu, what to pay if they work on a public holiday, and how much flexibility you actually have in an employment agreement. Businesses often get caught by three mistakes: assuming every employee who works a public holiday gets a substitute holiday, treating a day in lieu as an informal favour instead of a legal entitlement, and relying on a vague contract clause that does not match New Zealand employment law.

If you employ staff in retail, hospitality, healthcare, logistics, trades, or any business that sometimes operates on public holidays, this matters. The rules can affect payroll, rosters, leave records, and employment agreement drafting. They also come up when a worker leaves and you need to calculate final pay.

This guide explains what a day in lieu means in New Zealand, when an employee gets one, what you can agree in a contract, and the practical issues to sort out before you sign or update employment terms.

Overview

A day in lieu, usually called a substitute holiday in New Zealand law, is not optional if the legal conditions are met. If an employee works on a public holiday that would otherwise have been a working day for them, they are generally entitled to both time and a half for the hours worked and an alternative paid day off later.

• Whether the public holiday was otherwise a working day for that employee
• What the employee actually worked, including partial shifts and on call work where relevant
• How your employment agreement describes public holiday work, rostering, and time off in lieu
• Whether payroll is applying time and a half correctly as well as recording substitute holidays
• When the employee can take the substitute holiday, and what happens if employment ends first

What Day in Lieu Means For New Zealand Businesses

A day in lieu is usually a legal entitlement linked to public holiday work, not a casual swap you can handle informally.

In New Zealand, employers often use the phrase day in lieu to describe a substitute holiday. The entitlement sits under the Holidays Act framework. The basic question is not just whether someone worked on a public holiday, but whether that public holiday would otherwise have been a working day for them.

If the answer is yes, the employee will usually be entitled to:

• payment at not less than time and a half for the time worked on the public holiday, and
• a paid substitute holiday to take on another day

If the public holiday was not otherwise a working day, the employee may still need to be paid time and a half for hours worked, but they will not usually get a substitute holiday.

What does “otherwise a working day” mean?

This is where many businesses get caught. You cannot answer it just by looking at the roster on the day. You need to look at the employee’s actual pattern of work.

For example, if a part time employee usually works Mondays and a public holiday falls on a Monday, that holiday is likely otherwise a working day for them. If a casual employee works irregularly, you may need to consider a range of factors instead of assuming yes or no.

Common factors include:

• the terms of the employment agreement
• the employee’s work patterns over time
• whether there was a reasonable expectation they would have worked that day
• rosters or schedules
• any other relevant evidence about their normal working arrangements

The more irregular the arrangement, the more important your records become. Before you hire your first worker on a casual or variable roster, make sure your contract language and payroll systems can handle this distinction properly.

Substitute holiday versus other time off in lieu

Businesses also mix up substitute holidays with contractual time off in lieu for working extra hours. These are not the same thing.

A substitute holiday is a statutory entitlement that usually arises when an employee works a public holiday that would otherwise have been a working day. Contractual time off in lieu, on the other hand, is something you might agree for overtime or additional hours, especially for salaried staff or management roles.

If you want employees to take time off instead of overtime payments in some situations, that should be dealt with clearly in the employment agreement and written terms. But that kind of arrangement cannot override minimum legal entitlements for public holidays.

Why this matters for SMEs

For small and growing businesses, day in lieu issues often show up at awkward times. You might be expanding opening hours, relying on public holiday trade, or trying to keep staffing simple with one standard contract. That is exactly where legal drafting and payroll settings can drift apart.

The main business risks include:

• underpaying employees
• failing to provide substitute holidays when required
• using employment agreement clauses that are unenforceable or misleading
• keeping poor leave records
• disputes when an employee resigns or is dismissed and final pay needs to be calculated

These issues are usually preventable if you deal with them before you sign a contract and before you rely on a verbal promise about how public holidays will work.

Legal Issues To Check Before You Sign

The safest approach is to make your employment agreement, payroll process, and rostering practice line up from day one.

1. Check how the agreement describes public holiday work

Your employment agreement should be clear about whether the employee may be required to work on public holidays, how rostering decisions are made, and how legal entitlements will be handled. A vague clause that simply says public holidays are part of the role can create confusion, especially if it seems to suggest no extra payment or no alternative day off is available.

Before you sign, review whether the contract covers:

• the employee’s ordinary days of work
• whether hours are fixed, variable, part time, casual, or rostered
• whether the business may require work on public holidays
• how notice of rosters will be given
• that minimum legal entitlements under New Zealand law still apply

If your staff work variable shifts, this section matters even more. It helps support later decisions about whether a day was otherwise a working day.

2. Do not contract out of minimum entitlements

You cannot use an employment agreement to remove statutory public holiday rights. If an employee qualifies for a substitute holiday, a clause saying they agree to ordinary pay only, or that all public holiday work is absorbed into salary, may not be effective.

This is a common issue with all inclusive salary wording. Employers sometimes assume a higher salary lets them simplify everything. It does not remove minimum leave and holiday obligations.

Before you accept the provider's standard terms, or before you roll out a template from another market, make sure the wording fits New Zealand law.

3. Record ordinary working days carefully

The legal test often turns on actual work patterns. That means founders need more than a rough understanding of who “usually works weekends” or “sometimes covers Mondays”.

Your records should make it easier to answer:

• what days the employee normally works
• whether the roster changes frequently
• how often the employee has worked the relevant day in recent weeks or months
• whether there was a genuine expectation they would have worked but for the public holiday

For owner managed businesses, this is often where systems fall down. The person doing the roster knows the pattern, but payroll does not. Then an employee leaves, and nobody can confidently calculate entitlements.

4. Decide how substitute holidays will be taken

An employee who is entitled to a substitute holiday can usually take it at a later agreed time. That sounds simple, but it is worth dealing with the process in advance.

Your internal process should cover:

• how employees request to take the day
• who approves timing
• how much notice is needed
• what happens if the business has peak periods or blackout dates
• how payroll records the entitlement and when it is used

You can agree on timing, but you should not create a system that makes it practically impossible for employees to take their day in lieu.

5. Check final pay treatment

If employment ends before a substitute holiday is taken, the entitlement may still need to be dealt with in final pay. This is one of the most common founder moments for disputes because old public holiday records suddenly matter.

Before you sign, and again before an employee exits, make sure you understand:

• whether any substitute holidays are owing
• how they should be valued
• whether payroll records match roster records
• whether any earlier errors need correction

If there is uncertainty, it is better to resolve it early than wait for a disagreement after termination.

6. Be careful with casuals and contractors

Casual employment and contractor arrangements need extra attention. A casual employee may still become entitled to public holiday benefits depending on their actual working pattern and whether the day would otherwise have been a working day. A genuine contractor is different, because employment holiday entitlements generally do not apply in the same way.

This is where founders often get caught. A person labelled casual or contractor may, in practice, be working in a regular and predictable pattern. Before you classify someone as a contractor, make sure the arrangement genuinely fits that status. Worker status issues can affect much more than day in lieu entitlements.

Common Mistakes With Day in Lieu

The most expensive mistakes usually come from treating public holiday entitlements as an admin detail instead of a contract review and payroll issue.

Assuming everyone who works a public holiday gets a day in lieu

That is not always right. The key test is whether the public holiday was otherwise a working day for the employee. If it was not, the employee may still be owed time and a half for hours worked, but not necessarily a substitute holiday.

This matters for casual staff, relief staff, and employees with changing rosters. A blanket rule can create overpayments or underpayments.

Assuming salaried staff do not get separate entitlements

A salary does not automatically absorb public holiday rights. If a salaried employee works on a public holiday that would otherwise have been a working day, minimum legal entitlements still need to be met.

If your business uses annual salary packages, the contract should be drafted carefully. It should not suggest the employee has given up rights they cannot legally waive.

Using the wrong label for the entitlement

Some businesses call every extra day off a day in lieu. That can hide the real legal question. Is it a statutory substitute holiday for public holiday work, or a separate contractual arrangement for additional hours?

Those categories should be kept separate in both the contract and payroll records. If they are mixed together, disputes can become harder to untangle.

Not documenting roster expectations

If you cannot show whether a day was otherwise a working day, you are left reconstructing the position later from texts, memory, and incomplete timesheets. That is risky for both compliance and employment relations.

Good records usually include:

• written employment terms
• rosters kept over time
• timesheets or attendance records
• leave balances that are updated properly
• notes of any agreed changes to ordinary days

This becomes especially important where hours vary seasonally or where staff regularly swap shifts.

Letting substitute holidays build up without a process

Some businesses leave day in lieu balances sitting for months because nobody knows when they can be taken. That can create operational pressure later, especially if multiple staff want time off at once or an employee resigns with a large balance.

A simple policy can help. The policy should explain how substitute holidays are requested, how far in advance employees should ask, and how the business will deal with competing leave requests. The policy still needs to respect minimum legal rights, but it can make the process much easier to manage.

Relying on overseas templates

Employment documents copied from Australia, the UK, or generic online sources often use different public holiday concepts. New Zealand law has its own language and tests, particularly around otherwise working day analysis and substitute holidays.

Before you sign a contract copied from another source, have it checked for local compliance and contract drafting issues. This is a relatively small issue to fix early, and a much bigger issue if it causes a wage and leave dispute later.

Forgetting the business reality

Hospitality venues, medical practices, manufacturers, logistics businesses, and service providers all handle public holidays differently. The law is the same, but the practical solution should fit your operations.

For example:

• a café may need clear roster and availability rules for weekend and holiday trade
• a clinic may need written expectations for rotating public holiday shifts
• a field services business may need stronger timesheet controls for callout work
• a retail employer may need better part time pattern records to determine otherwise working days

The legal answer is easier to apply when the contract reflects how your team actually works.

FAQs

Does every employee who works on a public holiday get a day in lieu?

No. A substitute holiday is generally only owed if the public holiday would otherwise have been a working day for that employee. Time and a half may still apply for work performed on the public holiday.

Can an employee choose any date they want for a day in lieu?

Not usually. The timing is generally agreed between employer and employee. A sensible process in the employment agreement or leave policy can help avoid disputes.

Can an employment agreement say public holiday pay is included in salary?

Employers should be very careful here. A contract cannot remove minimum legal entitlements. Salary wording needs to be drafted so it does not conflict with statutory rights.

What if the employee's roster changes all the time?

You will need to look at the facts to decide whether the public holiday was otherwise a working day. The employment agreement, past rosters, work pattern, and reasonable expectations can all be relevant.

What happens to unused substitute holidays when employment ends?

They may need to be addressed in final pay if still owing. Accurate leave and payroll records are essential so you can calculate this correctly.

Key Takeaways

• In New Zealand, a day in lieu usually refers to a substitute holiday for working on a public holiday that would otherwise have been a working day.
• Employees who qualify are generally entitled to both time and a half for hours worked and a paid substitute holiday later.
• The phrase otherwise a working day is central, especially for part time, casual, and variable roster staff.
• Your employment agreement should clearly cover ordinary working days, public holiday work, rostering, and how leave entitlements will be handled.
• You cannot contract out of minimum public holiday and substitute holiday entitlements.
• Good records, including rosters, timesheets, and leave balances, make it much easier to apply the rules and avoid disputes.
• Substitute holidays should be managed through a clear process so employees can take them and payroll can track them properly.
• If you are reviewing or negotiating day in lieu and want help with employment agreement drafting, public holiday entitlement clauses, worker classification, or leave record issues, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.