Employer Refusing To Pay Holiday Pay In New Zealand? What To Do

If you run a small business, few things create bigger headaches (and faster loss of trust) than a dispute about holiday pay. It can start with something simple - an employee queries a payslip, a casual worker expects an extra 8% on top of their wages, or you realise your payroll system has been calculating leave using the wrong settings.

From there, it can escalate quickly: underpayment claims, complaints to MBIE, penalties, backpay going back years, and a lot of time spent digging through rosters and payslips.

In this guide, we’ll walk you through how holiday pay works in New Zealand, why disputes happen, what you should do if a worker says you’re refusing to pay holiday pay, and how to fix issues early - while protecting your business from day one.

General information only: this article is not legal advice. If you’re dealing with a specific underpayment or dispute, it’s worth getting tailored advice.

What Is “Holiday Pay” In New Zealand (And What Does It Cover)?

In New Zealand, “holiday pay” is often used as a catch-all term, but it can refer to different types of paid time off and related payments under the Holidays Act 2003.

When someone says “my employer won’t pay my holiday pay”, they might mean:

• Annual holidays (annual leave) - generally four weeks per year (employees start accruing this from the beginning of employment, and typically become entitled to take it after 12 months’ continuous employment, unless leave is taken in advance by agreement).
• Public holidays - paid days off when the day would otherwise be a working day.
• Alternative holidays - a paid day off earned when an employee works on a public holiday that would otherwise be a working day for them.
• Holiday pay on termination - paying out any annual leave (and other holiday entitlements) owing when someone leaves.
• “8% holiday pay” - in limited situations, annual holidays can be paid as 8% of gross earnings (for example, certain genuine fixed-term arrangements of less than 12 months where the employment agreement meets the Act’s requirements, and some genuinely casual/intermittent arrangements where it’s impracticable to provide annual holidays).

So the first step is to clarify which holiday pay issue you’re dealing with. You’ll fix problems faster if you don’t treat all leave as the same thing.

Also, keep in mind: the rules can change depending on the person’s work pattern (fixed hours vs rotating roster), whether they’re casual, part-time, or full-time, and what your employment documentation says. Getting your Employment Contract right early on makes a big difference when leave disputes come up.

Why Holiday Pay Disputes Happen (Even When You’re Trying To Do The Right Thing)

Most small business owners aren’t trying to “refuse” to pay holiday pay. The more common reality is that the business:

• has misunderstood the Holidays Act rules (they’re not always intuitive),
• uses payroll settings that don’t match the employee’s actual work pattern, or
• has inconsistent timesheets/rosters, making calculations messy.

Here are some of the most common causes we see behind holiday pay disputes in New Zealand.

1) Confusion Between Annual Leave And “8% Holiday Pay”

Many employers have heard that holiday pay is “8%” - but that doesn’t apply to everyone, and it doesn’t replace annual leave for standard ongoing employees.

Generally, employees are entitled to four weeks of paid annual holidays after 12 months of continuous employment (and annual holidays accrue during that first year). Paying 8% on top of wages instead of providing annual holidays is only allowed in specific circumstances set out in the Holidays Act, and usually only where the employment agreement is set up correctly to allow it.

If you’re not sure whether someone is truly casual/intermittent (or whether you should be providing annual leave instead), it’s worth checking your setup. Misclassifying workers is a common trigger for arrears and disputes. If you employ casual staff, make sure you understand casual workers’ leave entitlements and how they interact with holiday pay.

2) Incorrect “Relevant Daily Pay” Or “Average Daily Pay” For Public Holidays

Public holiday pay is not always as simple as “pay their standard hours”. Under the Holidays Act, when an employee takes a public holiday off (and it would otherwise be a working day for them), you generally pay them their relevant daily pay (or average daily pay if relevant daily pay can’t be determined).

This is where errors happen, especially if:

• hours vary week to week,
• employees earn commissions or allowances,
• overtime is common, or
• shifts are irregular.

If your business regularly uses overtime, shift allowances, or variable rosters, it helps to document how you treat additional hours and payments. (For example, your payroll approach to public holiday pay should align with your wider approach to extra hours - see our guide on working overtime.)

3) Problems With “Otherwise Working Day”

Another common source of disagreement is whether the public holiday (or alternative holiday) applies at all - which often turns on whether it would “otherwise be a working day” for that employee.

This can be tricky if the employee’s work pattern has changed over time, if rosters are inconsistent, or if someone has recently moved from full-time to part-time (or vice versa).

When your business changes staff hours (even for good commercial reasons), it can have a knock-on effect on public holiday entitlements and annual leave calculations. If you’re navigating changes like reduced rosters, it’s worth being careful with process and documentation - including when reducing staff hours.

4) Final Pay Miscalculations When Someone Leaves

A lot of holiday pay disputes arise at the end of employment. That’s because final pay often includes multiple items at once, such as:

• wages up to the last day worked,
• payment for untaken annual leave (including any entitled annual holidays, and accrued annual holidays since the last anniversary date where applicable),
• alternative holidays owing, and
• any contractual entitlements (commission, allowances, bonuses, etc.).

Final pay can also become complicated if you’re paying notice out rather than having the employee work it. If that’s your situation, make sure you understand payment in lieu of notice and how it interacts with leave and other entitlements.

Holiday Pay NZ: The Core Rules Small Businesses Need To Get Right

If you want to reduce the risk of “employer refusing to pay holiday pay” claims, it helps to anchor your approach in the core legal framework.

Below is a practical overview of the main areas under the Holidays Act 2003 that tend to matter most in disputes.

Annual Holidays (Annual Leave)

• Entitlement: Annual holidays accrue from the start of employment. Most employees become entitled to take four weeks’ annual holidays after 12 months of continuous employment (unless leave is taken in advance by agreement).
• Pay rate: When annual leave is taken (or paid out for entitled leave on termination), it’s generally paid at the higher of the employee’s ordinary weekly pay or average weekly earnings (this is a common place where payroll mistakes happen).
• Timing: Annual leave is typically taken by agreement, and employers should keep clear records of leave requests and approvals.

Public Holidays

• If the employee doesn’t work: They’re paid if the day would otherwise be a working day.
• If the employee works: They’re generally entitled to time-and-a-half for the hours worked, and may also earn an alternative holiday if the day would otherwise be a working day.

Alternative Holidays

Alternative holidays accrue when someone works a public holiday that would otherwise be a working day for them. These are paid days off that can later be taken (and should be tracked properly).

The “8% Holiday Pay” Concept

People often ask: what percentage is holiday pay in NZ? The short answer is that 8% can apply in limited scenarios - but it’s not a blanket rule you can apply to all employees instead of annual leave.

In practice, this often comes up for certain fixed-term agreements of less than 12 months (where the agreement meets the Act’s requirements to pay annual holidays as 8%), and for some genuinely casual/intermittent arrangements where providing annual holidays isn’t practicable. If your business relies heavily on casual or seasonal staffing, it’s worth getting tailored advice before adopting an “8% for everyone” approach - because if it’s wrong, the backpay can be significant.

What To Do If An Employee Says You’re Refusing To Pay Holiday Pay

When an employee raises a holiday pay concern, your goal should be to address it quickly and fairly - while also protecting the business legally.

Here’s a practical approach that works well for small businesses.

Step 1: Don’t Treat It As A Conflict (Yet)

Even if the complaint feels confrontational, treat it first as a payroll investigation. Many issues are genuine misunderstandings or admin errors.

A calm response like “Thanks for raising this - we’ll check the records and come back to you” is often enough to de-escalate things.

Step 2: Clarify Exactly What They Believe Is Owing

Ask for specifics, such as:

• Which pay period(s) they believe are wrong
• Whether it relates to annual leave, public holidays, alternative holidays, or final pay
• What figure they believe should have been paid
• Any roster/timesheet details they’re relying on

This keeps the discussion factual and helps you narrow the scope.

Step 3: Check Your Records (And Your Payroll Settings)

Holiday pay disputes are often solved by checking:

• the employment agreement (hours, days of work, pay structure)
• timesheets and rosters
• leave requests and approvals
• payslips and pay runs
• how payroll has been calculating “ordinary weekly pay”, “average weekly earnings”, or “relevant daily pay”

If you don’t have consistent records, that’s a red flag. The Holidays Act is heavily record-driven - and missing data makes it harder to defend your position if the dispute escalates.

Step 4: Fix Any Underpayment Fast (And Document The Correction)

If you identify an underpayment, it’s usually best to correct it promptly and provide the employee with a clear written explanation of:

• what went wrong,
• how you calculated the corrected amount, and
• when it will be paid (or if it’s already been processed).

This documentation matters. If there’s a pattern of errors, you want to show you took reasonable steps to put things right.

Step 5: If You Disagree, Respond With Reasons (Not Just “No”)

If your position is that holiday pay has been paid correctly, avoid a blunt refusal. Instead:

• explain the basis of your calculation,
• refer back to the employee’s work pattern/records, and
• invite them to provide further information if they believe something’s been missed.

This approach shows good faith and can help you resolve the issue internally.

How To Reduce The Risk Of A Holiday Pay Claim In Your Business

The best way to handle a holiday pay dispute is to avoid it in the first place. While you can’t eliminate risk entirely, you can dramatically reduce it with a few practical systems.

Set Clear Employment Documentation From Day One

Your leave and pay obligations start with the fundamentals: who is employed, what their hours are, whether their work pattern is fixed or variable, and what their pay structure includes.

A clear Employment Contract is the foundation, but you should also consider policies and processes (especially if you have multiple staff and rotating rosters).

Be Careful With Time Off In Lieu And Alternative Arrangements

Businesses sometimes try to solve staffing issues by offering informal “time off in lieu” arrangements. The risk is that if it’s not structured properly, it can become inconsistent with minimum legal entitlements (especially around public holidays, overtime, and alternative holidays).

If your workplace uses TOIL, make sure it’s clearly defined and consistently applied - see time off in lieu.

Make Sure Your Payroll Process Matches Reality

If the payroll system assumes fixed hours but your staff actually work variable shifts, your holiday pay calculations can drift off quickly.

Do periodic checks (even quarterly) to confirm that:

• public holiday payments match “otherwise working day” logic,
• time-and-a-half is applied when required,
• alternative holidays are accruing and being tracked, and
• annual leave payments are being calculated correctly for staff with variable earnings.

Plan Ahead For Terminations And Final Pay

Final pay is one of the most common times for holiday pay errors to show up. Before any termination (including resignations), it’s smart to do a final pay checklist so you’re not rushing calculations under pressure.

This is particularly important where the employee resigns without notice, or where there’s a dispute about notice periods. If that scenario applies, it’s worth being aware of the typical issues that arise when an employee resigns without notice.

Know When A “Business Day” Matters For Pay Timing

Many disputes aren’t just about how much holiday pay is owing, but when it should be paid (for example, at termination, or in the next pay run).

If you’re setting internal deadlines or responding to employee queries, it’s helpful to be consistent about what counts as a business day - see business day.

Key Takeaways

• In New Zealand, “holiday pay” can refer to annual leave, public holidays, alternative holidays, and holiday pay paid out on termination - so start by identifying which entitlement is in dispute.
• Many “refusing to pay holiday pay” claims arise from payroll errors or misunderstandings, especially around when 8% can be used, “otherwise working day”, and public holiday calculations.
• The Holidays Act 2003 is record-driven, so accurate employment agreements, rosters, timesheets, and payslips are key to preventing and resolving disputes.
• If a worker raises a concern, respond calmly, gather specifics, check records and payroll settings, and correct any underpayment quickly with written confirmation.
• Final pay is a common trigger for holiday pay disputes - plan for it early, especially where notice is being paid out or the departure is not straightforward.
• Clear systems (and properly drafted employment documents) help you stay compliant and protect your business from day one.

If you’d like help reviewing your employment arrangements, pay practices, or how your business handles holiday pay, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.