Employees are entitled to at least 4 weeks of paid annual leave after each 12 months of continuous employment with their employer. There are two methods to calculate the rate at which an employee gets paid for annual leave. The correct rate is the greater of:

  • ordinary weekly pay (OWP) as at the beginning of the annual leave; or
  • the employee’s average weekly earnings (AWE)  in the 12 months before the end of the last pay period before the annual leave.

Both of these calculations need to be done each time an employee takes annual leave to determine which method produces the higher total. If an employee takes a period of annual holidays that covers more than one pay period, the calculation for the entire time on annual holidays is still done at the start of the annual holiday.

Ordinary Weekly Pay

Ordinary weekly pay is the amount an employee receives under his or her Employment Agreement for an ordinary working week, including:

  • salary or wages;
  • regular allowances;
  • regular productivity or incentive-based payments; and
  • regular overtime.

Intermittent, one-off, and discretionary payments, as well as employer contributions to superannuation schemes are not included in this calculation.

This means the ordinary weekly pay includes everything an employee is normally paid for a week’s work, such as their salary or wages, but can include other payments as well if they are a regular part of the employee’s pay and relate to the work done each week.

Average Weekly Earnings

Average weekly earnings are worked out by calculating the employee’s gross earnings over the 12 months prior to the end of the last payroll period before the annual holiday is taken, and dividing that figure by 52. Gross earnings includes all payments that the employer is bound to make under the Employment Agreement or legislation.

The following payments make up gross earnings and should be included in the calculation:

  •          salary and wages;
  •          allowances;
  •          all overtime;
  •          commission;
  •          payment for annual holidays and public holidays;
  •          payment for bereavement leave and sick leave; and
  •          any other payments that are required to be made under the terms of the Employment Agreement.

Reimbursement payments, ex gratia payments, and discretionary payments (for instance bonuses) are not included in the gross earnings calculations.

What if an employee has not been working for 12 months?

An employee that has not yet been working for an employer for 12 months will not yet have any annual leave available.  The employee can instead ask to have their annual leave paid in advance.  When they become entitled to their annual leave after working for 12 months, the leave that they used in advance can then be deducted from their new entitlement. 

An employee can ask their employer to pay them leave in advance, but the employer does not have to agree.

Alternatively the employee can ask to take unpaid leave.  Again, the employee can ask, but the employer does not have to agree.

If an employer has a closedown period which required an employee to go on leave regardless of whether they have any annual leave, the employee can be paid out 8% of their gross earnings earned up to the date the closedown starts.  Their annual leave accrual date will then reset, and they will become entitled to 4 weeks of annual leave at the new anniversary date. 


Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins, we have an experienced employment law team, who can answer your questions and put you on the right track.

Gianna Menzies