As an employer, you owe certain employees various types of leave. Nevertheless, it can be confusing to understand the differences between types of leave and what you owe your employees. Hence, this article will explain the main difference between annual leave and time off in lieu in New Zealand.

What is Annual Leave?

Full-time employees are entitled to take four weeks of annual leave per year. You pay them at their ordinary rate for the duration of your employee's annual leave. However, the annual leave rate is typically prorated for part-time employees according to the number of hours worked. 

Notably, employees can take annual leave on their 12-month anniversary from when they started work. Nevertheless, you can also allow employees to take annual leave before their 12-month employment anniversary.

Do Casual Employees Have Leave Entitlements?

The situation gets more confusing for casual employees. While casual employees are entitled to holidays, their irregular and intermittent work hours make calculating their leave difficult. 

Hence, employers typically provide their casual employees with annual holiday pay alongside their regular pay. Generally, this is paid during a regular pay cycle of 8% of an employee's regular pay through a "pay as you go" system. 

If you want to make such a payment, you must:

  • include a "pay as you go" provision in the employment agreements; and
  • list the 8% holiday entitlement separately from the employee's regular wage on their payslips. 

What is Time Off in Lieu? 

Employers use time off in lieu or alternative holidays if an employee has had to work on a  public holiday. An employee is entitled to alternative holidays if:

  • they worked a public holiday; and
  • the public holiday is on a date that they would otherwise work.

Additionally, you must pay an employee at least their relevant daily pay for the hours they would have worked on the day they took the alternative holiday. 

If an employee works on a public holiday but is generally not a day they work, they are not entitled to an alternative holiday. However, they are still entitled to be paid at least time and a half for the hours worked.

What Happens if an Employee is 'On Call' On a Public Holiday?

Employees are entitled to a full day's alternative holiday if:

  • they are on call for a public holiday with restricted activities; and 
  • the public holiday falls on a working day they typically work on. 

Restricted activities mean they may be required to remain at home or close to the vicinity of the workplace. However, if they are not required to restrict activities and are not called to work, then they are not entitled to an alternative holiday.

What Happens To Unpaid Leave at the End of Employment?

Alternative holidays and  annual leave do not expire. Hence, employees are still entitled to their benefits if they have not taken leave. This means that at the end of an employee's employment, you must pay out any annual leave or alternative holidays at their regular rate.

Key Takeaways

Annual leave is a regular leave entitlement that an employee is entitled to after 12 months of continuous work. In comparison, time off in lieu or alternative holidays is days for employees who work a public holiday. If you and the employee agree, you can pay out alternative holidays. Ultimately, you must pay out any unused annual and alternative holiday leave in the employee's final pay.