Unpaid Leave And Public Holidays In New Zealand: Employer Obligations

If you employ staff in New Zealand, you’ll eventually run into tricky leave questions that don’t neatly fit into annual leave or sick leave. A common one is: what happens when an employee takes unpaid leave and that period overlaps with a public holiday?

This is where a lot of small businesses get caught out. It’s easy to accidentally underpay (or overpay), misapply a public holiday, or misunderstand when an employee has an “otherwise working day” entitlement.

In this guide, we’ll break down how unpaid leave and public holidays interact in New Zealand, what your minimum obligations are under the Holidays Act 2003 (and MBIE guidance), and the practical steps you can take to manage requests, payroll, and policies with confidence. This article is general information only and not legal advice.

What Is Unpaid Leave (And Can You Approve Or Decline It)?

Unpaid leave is generally leave taken by an employee where they’re not paid for time away from work.

In New Zealand, unpaid leave is not automatically a minimum entitlement in most situations (unlike annual leave, sick leave, bereavement leave, and public holidays). That means, for many unpaid leave requests, it’s typically:

• a matter of agreement between you and the employee; and/or
• something governed by the employee’s employment agreement and your workplace policies.

That said, there are certain circumstances where unpaid leave can arise from specific legal entitlements or processes (for example, certain parental leave arrangements), so it’s worth checking what type of leave is being requested before you respond.

Practical Tips For Managing Unpaid Leave Requests

From an employer’s perspective, the best way to avoid disputes is to be clear about:

• how the request must be made (e.g. in writing, how much notice);
• how you’ll decide it (e.g. business needs, resourcing, peak periods);
• how you will treat public holidays that fall inside an unpaid leave period (including how you’ll apply the “otherwise working day” test); and
• what happens to other entitlements (like annual leave accrual, alternative holidays, and payroll calculations).

If you’re reviewing your hiring documents generally, it’s often a good time to check your Employment Contract wording and ensure your internal leave rules match what you actually do in practice.

Public Holidays 101: What Are You Actually Required To Provide?

New Zealand’s public holiday obligations mainly come from the Holidays Act 2003. While the details can get technical, the core concepts are straightforward:

• If a public holiday falls on a day that would otherwise be a working day for the employee, they’re generally entitled to a paid day off (paid at the applicable relevant daily pay or, where required, average daily pay).
• If they work on a public holiday that is otherwise a working day, they’re generally entitled to:
  • time-and-a-half for the hours worked; and
  • an alternative holiday (a “day in lieu”).
• If the public holiday falls on a day that is not otherwise a working day for them, there is usually no entitlement to paid time off (unless they actually work and meet the criteria).

In a small business, the hardest part is often deciding whether the day is an “otherwise working day” (especially for variable rosters, casual arrangements, or seasonal work). If you regularly use casuals, it’s worth checking you’re aligned on how entitlements work across the board, including casual workers’ leave entitlements.

Why “Otherwise Working Day” Matters So Much

The “otherwise working day” test is key because it’s what links a public holiday to paid entitlement. It’s not just about what’s on the roster that week. It’s about what would have happened if the public holiday didn’t exist (and MBIE’s guidance includes a range of factors you can consider).

For example, you might look at:

• the employee’s usual work pattern (e.g. “every Monday to Friday”);
• the employment agreement terms;
• recent rosters and what is “normal”;
• any workplace communications about expected work days; and
• whether the employee is on a genuine, agreed period of unpaid leave (more on this below).

Unpaid Leave And Public Holidays In New Zealand: The Key Rule Employers Need To Know

Here’s the big point: if an employee is on unpaid leave, that can affect whether a public holiday is treated as an “otherwise working day”.

In other words, when you’re working through unpaid leave and public holiday scenarios, you generally need to ask:

• Was the employee genuinely on unpaid leave for that period (i.e. agreed and documented)?
• If the public holiday didn’t exist, would the employee have worked that day but for the unpaid leave?

If an employee is taking unpaid leave, the practical effect is often that they are not expected to work during that time. If they were not expected to work, the public holiday may not be an “otherwise working day” in that period (but you should still apply the statutory test based on the facts, consistent with the Holidays Act and MBIE guidance).

This is exactly why it’s important to confirm unpaid leave arrangements clearly. If you leave it vague (e.g. “take a bit of time off and we’ll see”), you risk later disagreement about whether a public holiday should have been paid.

A Common Example

Imagine your employee normally works Monday to Friday. They request, and you approve, one week of unpaid leave from Monday to Friday. A public holiday falls on the Wednesday of that week.

Depending on the facts, because the employee is on unpaid leave for the whole week, the Wednesday may not be treated as an “otherwise working day” during that leave period (because they weren’t expected to work due to the agreed unpaid leave). In that case, the public holiday entitlement may not apply for that day.

However, the details matter. Small differences in rostering, the agreement terms, and whether the unpaid leave covers the whole day can change the analysis.

If you’re ever unsure, getting advice early is a lot cheaper than fixing payroll issues later (or responding to a personal grievance or Labour Inspectorate inquiry).

How To Reduce Risk: Document Unpaid Leave Properly (Before It Starts)

When it comes to leave disputes, most problems aren’t caused by bad intentions. They happen because:

• the leave wasn’t clearly approved (or it was approved informally);
• payroll assumed one thing and the manager assumed another; or
• the employee expected a public holiday would still be paid, but the employer treated it as unpaid leave.

To keep things simple, you want to document unpaid leave approvals in a way that makes the payroll outcomes predictable.

What To Put In Writing

At a minimum, your unpaid leave confirmation should cover:

• the start date and end date (and whether it’s full days or part days);
• confirmation it’s unpaid leave (not annual leave or sick leave);
• how public holidays will be assessed if they fall during the leave (including the “otherwise working day” test, and that payment is based on relevant daily pay/average daily pay where applicable);
• any expectations around availability (e.g. “not expected to work or be on call”); and
• how the employee will return to work (their next rostered shift/date).

If you don’t already have a consistent process for this, it’s often worth rolling it into your broader workplace policy suite so managers aren’t making it up as they go. (This is particularly important when you’re scaling and you’re no longer the only person approving leave.)

Where you have changing hours or rosters, it can also help to align leave decisions with your process for reducing staff hours (where relevant) so you don’t accidentally blur the line between an agreed unpaid leave period and an employer-driven reduction of hours.

Common Scenarios: What Happens When Unpaid Leave Overlaps With Public Holidays?

To make this practical, here are some common real-world scenarios small business employers face. These aren’t a substitute for tailored advice (because small factual differences can change the legal answer), but they’ll help you spot the issues early.

Scenario 1: Whole Week Of Unpaid Leave And A Public Holiday Falls Inside

If an employee is on an agreed, clearly defined block of unpaid leave, a public holiday within that block will often not be treated as a paid public holiday because the employee may not have otherwise worked that day due to the unpaid leave (subject to the “otherwise working day” assessment).

The risk point: if the unpaid leave is not clearly agreed (or only loosely discussed), the employee may argue the public holiday should be paid because it would normally be a working day.

Scenario 2: Unpaid Leave For One Day And That Day Is A Public Holiday

This can get messy quickly. If an employee tries to request unpaid leave specifically on a public holiday, you’ll need to consider:

• is the day an “otherwise working day” for them?
• are they actually entitled to have that public holiday off on pay (calculated using relevant daily pay or average daily pay as required)?
• is the request effectively trying to “swap” an entitlement for unpaid leave?

Practically, if the day is an otherwise working day, you generally can’t contract out of the minimum public holiday entitlement. In many cases, the safer approach is to treat it as a public holiday entitlement rather than accept an unpaid leave request that could undermine the statutory minimum. This is a good moment to pause and get advice, because the way it’s handled can look like avoiding minimum employment rights.

Scenario 3: Part-Day Unpaid Leave During A Week With A Public Holiday

Where an employee takes partial unpaid leave (for example, leaving early or taking one unpaid afternoon), you need to be careful that payroll doesn’t mistakenly treat the entire day as unpaid if a public holiday is involved, or vice versa.

Make sure the approval clearly states the hours that are unpaid and what the normal working day would have been.

Scenario 4: Variable Roster Employees (Including “Casual-Like” Arrangements)

If your employee’s hours change week to week, figuring out whether the public holiday is an “otherwise working day” can be the hardest part.

Here, good record keeping is your best friend. Track:

• rosters;
• actual time worked;
• patterns over the last few weeks/months; and
• any agreed periods of unpaid leave.

If you’re unsure whether the relationship is truly casual or is functionally part-time, it’s worth getting your agreements reviewed so you don’t carry compliance issues forward.

Payroll, Policies, And Compliance: Employer Pitfalls To Avoid

Even when you have the right intentions, unpaid leave and public holidays can create compliance risk because they touch:

• minimum statutory entitlements;
• your employment agreement terms;
• record keeping obligations; and
• wage and time records (which can be audited).

Pitfall 1: “Auto-Deducting” Public Holidays During Unpaid Leave Without Checking

Some payroll setups treat any approved unpaid leave as automatically unpaid, even if it lands on a public holiday.

This is dangerous if the employee wasn’t truly on unpaid leave for that day (for example, if they only requested unpaid leave on Tuesday and Thursday, and Wednesday is a public holiday that would otherwise be a working day).

Your action step: make sure whoever approves leave understands the “otherwise working day” concept, and that payroll is told exactly what dates/hours are unpaid.

Pitfall 2: Forcing Leave Instead Of Agreeing It

Unpaid leave should generally be agreed. If you’re directing an employee not to work because there’s no work available, you might be entering “stand down” territory. That has its own legal risks and process requirements.

If you’re dealing with downtime, it can be worth reading up on employee stand down issues, because the legal framing matters (and so does how you communicate it).

Pitfall 3: Mixing Unpaid Leave With Annual Leave Direction Rules

Sometimes employers try to manage quiet periods by “suggesting” unpaid leave, when what they really mean is they want staff to take annual leave.

Annual leave has specific rules around when and how it can be required (and what consultation is expected). If you get this wrong, it can create disputes quickly.

If annual leave is part of your planning, it’s worth being clear on whether forced annual leave is actually allowed in your situation (and how to do it properly).

Pitfall 4: Not Updating Policies As Your Business Grows

What worked when you had two staff members often breaks when you have ten.

As you grow, you’ll want a consistent approach to:

• how unpaid leave is requested and approved;
• how you deal with “bridging” leave around public holidays (e.g. the days between Christmas and New Year);
• how you treat shutdown periods; and
• who has authority to approve leave (and how approvals are recorded).

If you’re already seeing confusion internally, it may be time for a legal health check of your employment documents and HR processes, so you’re protected from day one (and stay protected as you scale).

Key Takeaways

• In many cases, unpaid leave is not a standalone statutory entitlement and is usually taken by agreement, so your employment agreements and policies matter.
• Public holiday entitlements under the Holidays Act 2003 often depend on whether the day is an “otherwise working day” for the employee.
• When unpaid leave overlaps with a public holiday in New Zealand, the key question is often whether the employee would have worked that day but for the unpaid leave (and whether the unpaid leave was genuinely agreed and clearly documented).
• Where a public holiday is payable, make sure you apply the correct payment method (relevant daily pay or, where required, average daily pay).
• Document unpaid leave approvals in writing with clear dates/hours and expectations to avoid payroll disputes and misunderstandings.
• Be careful not to “force” unpaid leave as a substitute for proper processes (like annual leave direction rules or stand down situations).
• If you have variable rosters, casual arrangements, or frequent public holiday trading, get proactive about record keeping and having consistent internal rules.

If you’d like help reviewing your employment documents, setting up leave policies, or working through a specific unpaid leave/public holiday scenario, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.