Paying 8% holiday pay to casual staff: when it is lawful, and when to switch to four weeks

The two situations where 8% is allowed

The default under the Holidays Act 2003 is four weeks' paid annual holidays after each 12 months of continuous employment (section 16). Section 28 lets you pay holiday pay with each pay instead, often called pay as you go, but only when all four of its conditions are met:

1. the employee is on a fixed-term agreement to work for less than 12 months, or works for you on a basis so intermittent or irregular that it is impracticable to give them four weeks' annual holidays;
2. they agree to it in their employment agreement;
3. it is paid as an identifiable part of their pay; and
4. it is at least 8% of their gross earnings.

The word "casual" on an agreement does not meet the first condition. Employment New Zealand says it is the employee's actual work situation that qualifies them, and that impracticable means impossible in practice, not inconvenient or difficult. It applies when you cannot work out what a week is for annual holidays, or you do not know if or when the person will next work. Signs of genuinely irregular work are no guaranteed hours, no regular pattern, no expectation of ongoing work and real gaps without work.

The fixed-term route needs a genuine reason for the fixed term, recorded in the agreement. If a short fixed term is likely to run past 12 months, Employment New Zealand advises against pay as you go, because you could end up paying both the 8% and four weeks.

Paying it correctly: the agreement, the payslip and the sum

Write the arrangement into the employment agreement as its own clause, with the 8% stated separately from the hourly rate. On each pay, show the holiday pay as its own line. Employment New Zealand calls a separate payslip line, and a separate pay code in electronic payroll, good practice. A rate described as "$27 including holiday pay" leaves no identifiable amount, and section 28 requires one.

The 8% is worked out on gross earnings as section 14 defines them: wages, overtime, penal rates, commission, taxable allowances and any leave or public holiday pay in the period. It leaves out reimbursed expenses, discretionary payments and employer KiwiSaver contributions. A common error is to work it on ordinary hours only.

This made-up example is arithmetic. A casual works 20 hours at $25, which is $500, plus $60 of weekend penal rates, so gross earnings are $560. Holiday pay is at least 8% of $560, which is $44.80, and the pay before tax is $604.80. Working the 8% on the $500 alone gives $40, which is $4.80 short every week. The hours themselves must be paid at no less than the minimum wage, $23.95 an hour for adults from 1 April 2026, with the 8% added on top. Our 8% holiday pay calculator runs the same sum on any pay and flags an 8% worked on base pay only.

If 8% was paid when it should not have been

Getting the arrangement wrong does not save money. Section 28(4) says that where pay as you go was paid when the conditions were not met, and employment has continued for 12 months or more, the employee becomes entitled to four weeks' annual holidays under the Act despite those payments. Employment New Zealand adds that they can keep the pay-as-you-go payments already made, and that you must not deduct them from their holiday pay or their final pay.

The same applies when any one of the four conditions fails: the work was not genuinely irregular, the agreement did not provide for it, or the 8% was not identifiable in the pay. The cost is the four weeks, on top of what was already paid, for every year the arrangement ran.

Spotting a casual whose hours have become regular

Casual work tends to settle. Employment New Zealand says you should regularly review the work pattern of anyone on pay as you go. No law sets a review period, but looking back over 13 weeks, and again over 26, gives enough weeks to see a pattern without waiting for a full year. For each casual, check whether:

• they have worked most weeks, with no real gaps;
• the same days, or similar start and finish times, keep recurring;
• you roster them in advance, or expect notice when they are unavailable; and
• the business now relies on them to cover set shifts.

Any of these makes the person unlikely to be casual, whatever their agreement says. Employment New Zealand's example is Vinod, a cafe worker hired as a casual who picked up the odd shift, then from 15 September 2024 worked 9am to 2pm every weekday. From that date he was permanent part-time.

When that happens, offer a new agreement that reflects the real arrangement, with time to read it and seek independent advice, and stop the 8% on the day the work changed. Employment New Zealand sets out two ways to give the four weeks. Either the four weeks are owed 12 months after the change, or they are owed 12 months after the person started, with the pay-as-you-go already paid deducted from their holiday pay, which is allowed only if the 8% stopped as soon as the work changed. Sick leave follows the six-month test in section 63. You also lose the option of simply not offering shifts: ending the job now needs a fair process. Our article on casual versus permanent part-time work explains the difference from the employee's side.

The review is only as good as your record of hours. Team timesheets from jobtracker.co.nz shows each person's shared hours by person, project and task for any period you choose, with start, finish and breaks on each day, so you can step through 13 or 26 weeks for each casual, or download the entries as a CSV and count the weeks worked. It does not hold anyone's pay or leave balances, run payroll or build rosters, and because each person chooses whether to share their hours, it sits beside your wages and time record rather than replacing it. It costs $6.99 a seat a month, GST included, for at least three seats.

What changes from 6 August 2028

The Employment Leave Act 2026 replaces the Holidays Act on 6 August 2028. Until then, the rules above apply. After that date, the 8% and the impracticable test go:

• Casual hours are defined by the agreement: hours worked where you are not required to offer work and the employee is not required to accept it (section 8).
• A leave compensation payment replaces pay as you go for those hours. Under section 126 it is at least 12.5% of the employee's ordinary hourly rate for each casual hour, paid every pay period and shown as a distinct component in the leave record. It is worked on the ordinary rate, so penal rates do not raise it. In the example above, 20 hours at an ordinary rate of $25 earn at least $3.125 an hour, $62.50.
• Standard hours earn annual leave as they are worked, at least 0.0769 of an hour for each standard hour (section 24), which is why the line between casual and standard hours will matter more, not less.
• Leftover holidays held by someone working casual hours on 6 August 2028 are paid out on that date (Schedule 1, clause 10).

Our article on the Employment Leave Act and your hours records covers the records the new law asks for.

Every casual's weeks on one page