Employee Leave During The Notice Period In NZ

When an employee resigns (or you’ve given notice of termination), the notice period can feel like a “grey zone” for small business owners.

They’re still your employee, you still need to run the business, and you still have to follow New Zealand employment law. At the same time, it’s common for employees to ask to use up leave, take stress-related sick leave, or simply stop turning up for shifts.

This guide breaks down what you need to know about managing employee leave during the notice period in New Zealand, including what leave can be taken, what you can direct, and how to reduce the risk of a dispute (or a surprise wage issue) at the end of employment.

Note: This article is general information only and isn’t legal advice. Because notice, leave and final pay outcomes can depend heavily on the employment agreement and the facts, get specific advice before taking action.

What Is The “Notice Period” And Why Does Leave Get Tricky?

The notice period is the time between when notice is given (by the employee resigning, or by you terminating employment) and the employee’s final day.

In NZ, notice requirements usually come from the:

• Employment Agreement (most common),
• the “reasonable notice” concept in some circumstances (less common and very fact-specific), and/or
• any agreed variation (for example, both sides agreeing to shorten the notice period).

During the notice period:

• the employee is generally still employed and remains entitled to wages for hours worked (or rostered hours, depending on their arrangement),
• you still have normal employer obligations (including good faith and health and safety obligations), and
• leave entitlements continue to operate.

Where things get complicated is that notice periods often line up with:

• handover and training needs,
• access to systems and customer relationships,
• employee motivation dropping, and
• awkward conversations about “using up” annual leave or taking time off before their final day.

A good starting point is to check the employee’s Employment Contract for clauses about notice, final pay, annual leave during notice, and any stand-down or garden leave concepts.

What Leave Can An Employee Take During The Notice Period?

An employee doesn’t “lose” their ability to take leave just because they’ve resigned or been given notice. The usual leave rules still apply, but the type of leave matters.

Annual Leave During Notice Period

Annual holidays are governed by the Holidays Act 2003. Employees may request annual leave during their notice period, and you can consider it like any other annual leave request.

From an operational perspective, notice periods are often when you most need the employee present (handover, documentation, training a replacement). So it’s completely normal to be cautious about approving annual leave during this time.

Key practical points:

• If the employee requests annual leave, you can assess the request in light of business needs and respond in a timely way.
• If annual leave is approved, it must be paid correctly (including the Holidays Act rules around “relevant daily pay” and, where applicable, “average daily pay”).
• If annual leave isn’t taken before the final day, any unused entitled annual holidays are paid out in final pay. For the period since the employee’s last anniversary date, the employee is generally paid holiday pay (usually 8% of gross earnings), less any annual holidays taken in advance (if applicable).

Employers also ask whether they can direct an employee to take annual leave during notice. Notice periods don’t automatically give you a free pass to “use up” an employee’s balance. If you’re thinking about directing annual leave, it’s worth reading annual leave guidance first, because the Holidays Act has specific requirements (including notice and consultation expectations) that still need to be met.

Sick Leave (Including Stress Or Mental Health Leave) During Notice Period

Sick leave can be taken during a notice period if the employee is genuinely unwell or injured, including for mental health reasons.

From an employer perspective, this is where risk can spike: it’s easy to assume a sick day near the end of employment isn’t legitimate, but it can also be completely genuine (and mishandling it can create personal grievance risk).

In general:

• If the employee meets the eligibility rules for sick leave, they can use it during the notice period.
• You can ask for medical evidence in the usual way (for example, if the sick leave is for 3+ consecutive calendar days, or earlier if you agree to cover the cost of getting the proof).
• Be careful with how you communicate about mental health. A heavy-handed response can quickly become an allegation of unfair treatment.

If you’re dealing with a mental health absence, it helps to understand the typical approach employers take in NZ when staff need time off: mental health day off work.

Public Holidays And Alternative Holidays During Notice

If a public holiday falls during the notice period, it’s treated like any other time in employment. If it’s an otherwise working day for the employee, you may need to pay them for the public holiday even if they don’t work (unless there’s a lawful reason not to).

If they work on a public holiday, alternative holiday entitlements can arise depending on the circumstances.

Time Off In Lieu (TOIL)

Some businesses also have TOIL arrangements, especially where overtime occurs or where employees work additional hours. If you offer TOIL, make sure the arrangement is clearly documented and applied consistently.

If TOIL is in play during a notice period, consider whether you:

• allow the employee to take TOIL as time off during the notice period, or
• instead pay it out (if that’s what your agreement or policy allows).

If this is an area you’re unsure about, time off in lieu rules are worth getting clear on early, because TOIL misunderstandings can easily cause payroll disputes at the end of employment.

Can You Require An Employee To Take Leave During The Notice Period?

This is one of the most common questions we see from small business owners: “Can I just tell them to take their annual leave and finish up?”

Sometimes you can direct annual leave, but it isn’t automatic and it isn’t always the best move.

Directing Annual Leave (When It Might Be Possible)

Under the Holidays Act 2003, employers can require employees to take annual holidays in certain circumstances (for example, during a closedown period, or by giving at least 14 days’ notice). There are also specific rules for situations like “excessive” annual holiday balances, which generally require consultation and good faith engagement.

In practice, whether you can direct annual leave during a notice period will depend on factors like:

• what your employment agreement says,
• whether you’ve given the right notice and followed the right process,
• the reason you’re directing the leave (for example, genuine lack of work vs. wanting the person out of the workplace), and
• your obligation to act in good faith.

It’s important not to treat “directed leave” as a shortcut around a proper termination process. If your real goal is to remove access to customers, systems, or confidential information, another tool (like “garden leave”) may be more appropriate, but it should be supported by the employment agreement (or clearly agreed) and the employee generally remains employed and paid for the notice period.

Requiring Sick Leave Is Not A Thing

You can’t direct an employee to take sick leave. Sick leave is for when they are actually sick or injured.

If an employee claims to be sick, you can manage it through your normal sick leave process (including medical certificates where permitted), but you can’t force them to “use sick leave” to cover notice.

What About Unpaid Leave?

Unpaid leave is generally something that’s agreed between you and the employee. You can’t usually force an employee onto unpaid leave just because they are leaving (and doing so may create wage arrears risk).

If you want to explore an agreed unpaid leave arrangement, make sure it’s properly documented in writing, including the impact on final pay and the final date of employment.

What If The Employee Takes Leave And Their Notice Period “Runs Out” While They’re Away?

This is another common scenario: an employee resigns with four weeks’ notice, then requests (or takes) leave for the final two weeks.

In most cases, the notice period still runs based on calendar time, and the employment relationship continues until the agreed final date, even if the employee is on leave for some of that time.

However, you should be careful about situations where:

• the employee is on extended sick leave and there are questions about ongoing incapacity,
• there are disciplinary issues or performance issues running alongside the resignation, or
• you want the employee to stop attending work immediately for risk reasons.

If your priority is ending the employment earlier than the notice period, you might be considering payment in lieu of notice. That can be a practical option, but it needs to be handled correctly (including checking whether the employment agreement allows it or whether you have the employee’s agreement, and ensuring final pay is calculated accurately).

Practical Steps To Manage Leave Requests During The Notice Period (Without Creating Risk)

The best outcomes usually come from having a clear process, communicating early, and keeping a written record. Here’s a practical approach many NZ employers use.

1) Check The Employment Agreement And Policies First

Before you respond to any leave request, check:

• the notice clause (length and any special rules),
• annual leave and closedown clauses,
• any clause about payment in lieu or garden leave, and
• any workplace policies that affect leave approvals.

If your agreements are outdated or unclear, it’s worth reviewing them sooner rather than later. Notice period issues often expose gaps in documentation.

2) Confirm The Last Day (In Writing)

Once notice is given, confirm the employee’s:

• final day of employment,
• expected working days during the notice period, and
• handover expectations.

This avoids the “I thought my last day was Friday” confusion, especially when leave gets added into the mix.

3) Treat Annual Leave Requests Like Any Other Request (But Be Clear About Business Needs)

If an employee asks for annual leave during the notice period, you can consider:

• customer commitments and roster coverage,
• whether you need them for handover/training,
• the size of their leave balance, and
• whether you can reasonably accommodate some (but not all) of the leave requested.

Try not to default to “no” without thinking it through. If you refuse, communicate the business reason clearly and respectfully.

4) Have A Consistent Sick Leave Process

If an employee calls in sick during notice, you should follow your usual process. That includes:

• recording the absence,
• considering whether medical evidence can be requested, and
• keeping communications professional and minimal (avoid emotionally charged messages).

Even if you suspect the sick leave is convenient timing, avoid “trial by text message”. Handle it through process, not assumptions.

5) Plan The Handover Early (So Leave Doesn’t Derail You)

If you leave handover to the final week, any sick day or annual leave request can throw your operations into chaos.

Instead, consider:

• having the employee document key tasks and client notes in week 1–2,
• moving access-critical handovers earlier, and
• creating a simple checklist of what must be completed before their last day.

6) Final Pay: Get The Calculations Right

Notice period leave issues often end with a final pay dispute. Common risk areas include:

• incorrect final pay calculations for annual holidays (including the “entitled” portion vs the 8% holiday pay portion),
• TOIL balances not being recorded properly,
• public holiday pay during the notice period, and
• attempts to deduct money without lawful authority.

If you’re unsure, it’s better to get advice early than to “guess and fix later”. Final pay mistakes can quickly escalate into formal complaints.

Key Takeaways

• Leave during the notice period is still governed by the usual NZ rules - notice doesn’t switch off annual leave, sick leave, or public holiday entitlements.
• You can generally consider annual leave requests during notice based on business needs, but keep your response timely, clear, and consistent.
• You can’t direct sick leave, but you can manage it through your normal sick leave process (including requesting medical evidence where permitted).
• Directing an employee to take annual leave can be possible in limited circumstances, but it needs to be done properly under the Holidays Act 2003 (including notice/process requirements) and in line with good faith obligations.
• If you want the employee to finish earlier than the notice period, options like payment in lieu of notice may be available, but you should check your employment agreement first (and whether agreement is required).
• The safest way to avoid disputes is to confirm the final day in writing, plan the handover early, and ensure final pay is calculated correctly.

If you’d like help managing a resignation or termination - including notice periods, leave requests, and getting your end-of-employment paperwork right - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.