What Happens to Your Accrued Annual Leave When You Leave Your Job?

When leaving a job, whether by choice or not, employees often ask whether they will be paid for their unused or accrued annual leave?  The short answer is yes, in most cases.  But it is a good idea to understand what the law says, what an employment contract might include, and whether there are any exceptions.

What Is Annual Leave?

Annual leave is paid holiday time. Under New Zealand’s Holidays Act 2003, most employees get at least 4 weeks of annual leave after working for 12 months with the same employer.

The Holidays Act 2003 sets out your rights for holiday leave including the following key points.

• After 12 months’ continuous employment, you’re entitled to 4 weeks’ paid annual leave.

• When you leave, any unused leave must be paid out.

• If you leave before 12 months, you get 8% of your gross earnings.

• Payment must be at your ordinary weekly pay or average weekly earnings, whichever is higher.

• Payment must be made on or before your final day, or on the next usual payday.

When Must Your Employer Pay You for Annual Leave?

If you leave your job and haven’t used all your annual leave, your employer must pay out your unused or accrued  annual leave when your job ends, no matter how it ends including the following situations:

Resignation

If you resign, your employer must pay you for any unused annual leave. This includes any full weeks of leave earned and any “pro-rated” leave if you’ve worked less than 12 months (paid out as 8% of your total earnings).

Redundancy

If you’re made redundant, you’re still entitled to payment for all unused annual leave as well as any other final pay items (e.g., notice, redundancy compensation if your contract provides it).

Termination for Misconduct or Serious Misconduct

Even if you're dismissed for serious misconduct (like theft or violence), your employer must still pay you for any accrued annual leave. The reason your job ends does not cancel your holiday pay rights.

End of a Fixed-Term or Casual Agreement

If your job ends because a fixed-term contract ends or a casual role finishes, you’re entitled to annual leave payments:

• Either your full 4 weeks if you’ve been there a year, or

• 8% of your gross earnings if you haven’t worked 12 months yet or if you’ve been on “pay-as-you-go” leave.

Are There Any Times an Employer Might Not Pay Out Annual Leave?

There are only a couple of situations where you may not be paid out your annual leave when you leave your job.

Pay-As-You-Go Annual Leave Already Paid

If you're a casual worker or on a short fixed-term contract, you may be paid 8% holiday pay with each pay. This must be clearly stated in your employment agreement and payslips. If you’ve already been paid for annual leave as you earned it, you won’t get more when you leave because you’ve already received it.

Leave Taken in Advance Exceeds Entitlement

If you took more annual leave than you earned (called leave in advance), your employer may deduct the extra days from your final pay. This must be agreed to in your contract or with your written consent. For example if you worked 10 months but took 4 weeks of leave, you have only earned about 3.3 weeks. Your employer can recover the extra days’ pay but they must follow proper legal steps.

What About the Annual Leave Clause in my Employment Contract?

Most employment contracts or individual employment agreements include extra details about annual leave, such as:

• Whether leave is calculated on an anniversary date or per pay period,

• Whether more than 4 weeks are offered (some employers offer 5 or more),

• Any rules about leave in advance, and/or

• If leave is paid out on a "pay-as-you-go" basis (for casual/fixed-term roles).

It is important to note that no contract can remove your rights under the law. If a clause gives you less than what the Holidays Act allows, it’s not valid.

FAQs 

What if I never used my leave, do I lose it? No. Your employer must still pay you for unused annual leave when your job ends. You never “lose” leave you’ve earned.

Can my boss refuse to pay annual leave because I was fired? No. Even if you’re dismissed for misconduct, you are still owed annual leave you earned before the dismissal.

What if I didn’t work a full year? You won’t get the full 4 weeks, but you’re entitled to 8% of your gross earnings as holiday pay. This gets included in your final pay.

Can I be paid for leave instead of taking time off? Only if you ask to “cash up” a maximum of 1 week per year, and the employer agrees in writing. You can’t cash up all your leave unless your job is ending.

How can I check if I was paid correctly?

• Ask for a final payslip

• Compare your annual leave balance before you left

• Check the calculation method.  Was it your ordinary weekly or average earnings?

• If unsure, speak to an employment expert or Employment New Zealand.

Most workers in NZ get 4 weeks of annual leave after a year on the job.  If you leave, you must be paid out for unused leave whether you resign, are made redundant, or are dismissed.  If you worked less than 12 months, you’re still entitled to 8% holiday pay.  Some exceptions apply for casual or fixed-term roles with “pay-as-you-go” arrangements.  Your employer must follow the law and can’t avoid paying what you’ve earned

At Mathews Walker Employment Law, we help employees understand their rights and get what they’re owed. If you think your employer has underpaid your annual leave or final pay, we’re here to support you. Contact us today for a free consultation. MathewsWalker.co.nz | 0800 612 355

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