How annual leave works when an employee returns from parental leave

Under New Zealand employment law, employees are entitled to annual leave and parental leave if they meet entitlement requirements.

An employee may be on parental leave for up to 12 months, which gives rise to questions concerning how annual leave entitlements are affected when an employee returns from parental leave.

Under the Holidays Act 2003, annual leave is paid at the rate of at least the greater amount of:

• Ordinary weekly pay as at the beginning of the annual holiday (the amount of pay the employee receives under their employment agreement for an ordinary working week); or
• The employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.

However, under the Parental Leave and Employment Protection Act 1987, the calculation for annual leave changes where an employee becomes entitled to annual leave while they are on parental leave or in the 12 months following taking parental leave. The amount of payment is then determined by calculating only the employee’s average weekly earnings for the 12 months immediately preceding the end of the last pay period to the annual leave being taken. Although the calculation would no longer have to be compared to the ordinary weekly pay, an employer still has the option to pay these annual holidays using the greater of the two.

It is thus likely that an employee taking annual leave soon after returning from parental leave will be entitled to a lower rate for their annual leave payment than if they took their leave another time.

Accordingly, it is not unusual for employees to request that they take annual leave in advance of entitlement before they go on parental leave, as 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).

We advise that employers and employees begin talks early on to make sure that there is a shared understanding of their rights and responsibilities to each other, including the affect that parental leave may have on an employee’s annual leave entitlements.

Workplace Law team

If you have any queries in respect of the above, or any other Workplace Law issues, please contact a member of Lane Neave’s Workplace Law team:

Employment: Andrew Shaw, Fiona McMillan, Gwen Drewitt, Maria Green,  Hannah Martin, Joseph Harrop, Holly Struckman, Alex Beal, Giuliana Petronelli, Abby Shieh
Immigration: Mark Williams, Rachael Mason, Daniel Kruger, Nicky Robertson, Julia Strickett, Ken Huang, Mary Zhou, Shi Sheng Cai (Shoosh), Sarah Kirkwood, Janeske Schutte, Lingbo Yu
ACC: Andrew Shaw
Health and Safety: Andrew Shaw,  Fiona McMillan