Parental leave affecting annual leave and annual holidays

ANSWER ID:4477

In New Zealand, employees still accrue annual holidays whilst on parental leave. Under the Holidays Act 2003 all employees are entitled to annual holidays either on the anniversary of their employment commencement date, or on the date of the beginning of their employer's customary seasonal closedown.

An employee's time on parental leave is included as continuous service and the taking of parental leave does not affect entitlement to annual leave; the employee will still be entitled to a minimum of four weeks of annual holidays. The payments for the annual holidays will be affected by the parental leave.

Normally payments for annual leave would be based on the greater of:

Average weekly earnings for the 12 months immediately before the end of the last pay period before the annual leave is taken: or
The employee's ordinary weekly pay as at the beginning of the annual leave (the amount of the pay the employee receives under his/hers employment agreement for an ordinary working week).

Under the Parental Leave and Employment Protection Act 1987, if an employee becomes entitled to annual leave while they are on parental leave or in the 12 months following any parental leave, the calculation changes. The payment amount will then be determined by calculating only the employee's average weekly earnings for the 12 months immediately before the end of the last pay period prior to the annual leave being taken.

The calculation would not be compared to the ordinary weekly pay as would normally occur. This means that if an employee takes annual leave soon after coming back from parental leave there is the likelihood that the payment for annual leave may be at a lower rate than if they took their leave at another time.

Annual leave is always calculated at the time the employee takes their leave.

As advised by the Department of Labour, it is important for both the employer and the employee to discuss leave plans as early as possible. Suggested factors to take into consideration:

Ensure all parties are fully informed of their entitlements and obligations to each other: including where to source further information or assistance.
Ensure you have a discussion about how to use any current annual leave balances, when the anniversary date is, and the effect of parental leave legislation on their entitlement.
In some cases, it may be advantageous for the employee to take the annual leave before they go on parental leave.

For information on setting up an employee for Parental Leave, see Setting up an employee on parental leave and paying annual leave upon their return.

Visit the Department of Labour website for more information.

What if an employee reduces their hours after parental leave?

If an employee returns from parental leave on reduced hours, learn how to reduce their Normal Hours per week.