How annual holiday pay is calculated
The Holidays Act 2003 requires annual holidays to be paid at the greater of:
- Ordinary weekly pay (OWP): what you are normally paid for a week, including regular allowances and regular overtime.
- Average weekly earnings (AWE): your gross earnings over the 12 months before the holiday, divided by 52.
If you received a big pay rise recently, OWP is usually higher. If you earned lots of overtime or commission, AWE often wins.
Worked example: AWE beats OWP
OWP $1,300, earnings last 12 months $70,000, one week off
Average weekly earnings are $70,000 ÷ 52 = $1,346.15, more than the $1,300 ordinary weekly pay, so a week of annual holidays must be paid at $1,346.15.
Holiday pay$1,346.151 week
- Weekly rate used
- $1,346.15average weekly earnings
- Annual entitlement
- 4 weeksafter 12 months’ service
- Sick leave
- 10 daysper year after 6 months
- Ordinary weekly pay
- $1,300.00
- Average weekly earnings (12 months ÷ 52)
- $1,346.15
- Rate: the greater of the two
- $1,346.15
- × 1 weeks
- $1,346.15
For a casual employee who earned $10,000, pay-as-you-go holiday pay at 8% is $800.
What is changing
The government has announced a replacement of the Holidays Act with an hours-based accrual system. Until the new law takes effect, the current rules — and the calculations on this page — apply.
Tips
- Check your payslip for the rate used; holiday pay errors are common with variable earnings.
- Cash up to one week of annual holidays a year if your employer agrees — in writing, at your request.
- When you leave, unused annual holidays are paid out, and holiday pay for the part-year is 8% of gross earnings since your last anniversary.