Effect of parental leave on annual leave

by The FindLaw Team

Under New Zealand employment law, employees are entitled to take time off work for holidays (annual leave) and also to take time off work to care for a baby (parental leave).

Parental leave can be for up to 12 months at a time, which might give rise to questions such as “What happens when an employee becomes entitled to annual leave while on parental leave?”, “How is holiday pay calculated after a period of parental leave?”, “What happens to annual leave entitlement if the employee doesn’t return to work after parental leave?” and “Can an employee cash in their annual leave when they go on parental leave?”.

Annual leave entitlement during parental leave

Annual leave cannot be taken during a period of parental leave. However, the employee might become entitled annual leave during this period (because they are on parental leave when their anniversary date arises).

Where an employee becomes entitled to any annual leave during a period of parental leave under the Parental Leave and Employment Protection Act 1987, holiday pay for annual leave they take in the 12 months after they return to work is calculated and paid as average weekly earnings only.

There is no requirement to bring this amount up to the value of ordinary weekly pay when the leave is actually taken. This applies to all parental leave taken under the Act and affects annual leave to which the employee becomes entitled during:

  • The period of parental leave;
  • The period during which the employer must give the employee preference in employment; or
  • The 12 months following the employee’s return to work

The employee’s anniversary date for annual leave purposes remains the same (ie one year after the day on which their employment commenced or on which their first closedown commenced) if the employee takes parental leave.


Jane commences parental leave in June 2012. In December 2012, she becomes entitled to 4 weeks’ annual leave. Note that annual leave cannot be taken during the period of parental leave.

The period of parental leave ends in June 2013. In December 2013, Jane again becomes entitled to 4 weeks’ annual leave.

When Jane takes the annual leave that she became entitled to in December 2012 she must be paid her average weekly earnings for the 12 months prior to the end of the last pay period before she takes the annual leave. Her average weekly earnings will therefore vary depending on the length of time since she returned from unpaid parental leave.
The annual leave which she becomes entitled to in December 2013 is paid at the greater of her average weekly earnings and her ordinary weekly pay at the time of taking the leave.

How much holiday pay after annual leave?

The amount of holiday pay due to an employee when she takes annual leave after returning to work from parental leave will vary, depending on when she takes that leave. This is because leave she becomes entitled to while on parental leave or during the 12 months after she returns is paid at average weekly earnings only (not ordinary weekly pay).

Using Jane as an example, we can demonstrate how much it can vary.

Jane used all her outstanding entitlement to annual leave (from December 2011) in the weeks before she went on parental leave. Her pay is $1000 per week.

Jane returns to work in June 2013, having become entitled to 4 weeks’ annual leave in December 2012.

If she takes annual leave immediately (ie before she actually starts working again), her holiday pay would be $0 per week. This is because it is based on her average weekly earnings for the 12 months before the leave is taken, and she was on unpaid leave during that period.

If Jane takes the annual leave in October 2013, having worked for 12 weeks since her return at $1000 per week, her average weekly earnings would be:

$12,000 ÷ 52 weeks = $230.77.

In December 2013, Jane becomes entitled to another 4 weeks’ annual leave. Because Jane became entitled to annual leave during her parental leave, while this is within 12 months of her return to work from parental leave, holiday pay for this leave must be calculated based on the greater of her average weekly earnings or ordinary weekly pay.

Can I cash in my annual leave before taking parental leave?

It is not unusual for workers to ask to be paid holiday pay before the commencement of parental leave. The usual expectation is a payment based on the 8% holiday pay calculation. However, no annual leave is due and employment is not being terminated, so there is no entitlement to such payment.

The employee may also request that they take annual leave in advance of entitlement before they go on parental leave. If allowed, this annual leave would be paid at their ordinary weekly pay or their average weekly earnings for the 12 months prior to taking the leave (section 22 of the Holidays Act 2003). Bear in mind that their average weekly earnings before they go on parental leave is likely to be higher than their average weekly earnings for up to a year after they return (because parental leave is unpaid) – see above.

Annual leave entitlement on failure to return to work

There is no consideration for annual leave during the period of leave. However, there would be an entitlement for the period from the date on which they last became entitled to annual leave to the date on which the employment is deemed to have terminated (ie the date on which they commenced parental leave).

This would be calculated at 8% of gross earnings during that period, less any annual leave taken in advance, or plus any outstanding annual leave from a previous entitlement.

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