Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Calculation of Annual Holiday Pay if Employment Ends within 12 Months

If the employee leaves before completing 12 months of service, the employee’s annual leave accrual is paid based on 8% of gross earnings for the period, less any leave paid in advance.

Section 23. Calculation of annual holiday pay if employment ends within 12 months (1) Subsection (2) applies if —

(a) the employment of an employee comes to an end; and (b) the employee is not entitled to annual holidays because he or she has worked for less than 12 months for the purposes of section 16. Please note: if you give the employee additional leave such as a 5 th week this does not mean accrual is based on 10% (unless this has been agreed). The 8% will be used to pay out the accrual outstanding for annual holidays. Section 23 (2) allows the employer to recover annual leave paid to the employee in advance (under section 22) on termination prior to 12 months. In general, the employer cannot deduct from an employee’s pay, but section 2 3 (2) (a) allows any annual holiday paid in advance to be deducted. Section 23 (2) (b) allows the employer to deduct an annual holiday paid out under section 28 (pay as you go) to be deducted from the employee’s final payment for leave calculation.

(2) An employer must pay the employee 8% of the employee's gross earnings since the commencement of employment, less any amount —

(a) paid to the employee for annual holidays taken in advance; or (b) paid in accordance with section 28.

© New Zealand Payroll Practitioners Association, Mar 2026, Ver 9

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