Time in lieu in NZ: how it works, how to record it, and paying it out

Time in lieu is not an alternative holiday

The two are easily confused, partly because Employment New Zealand notes that an alternative holiday is sometimes called a day in lieu. They come from different places.

An alternative holiday is a legal right. Under sections 56 and 57 of the Holidays Act 2003, someone who works any part of a public holiday that would otherwise be a working day for them gets a whole working day off at another time, however long they worked, as well as at least time and a half for the hours worked. The day is agreed, or if you cannot agree, you set it on a reasonable basis with at least 14 days' notice. After 12 months they can ask to exchange it for payment, and one still owed when they leave is paid in their final pay. Our guide to leave in New Zealand covers public holidays and alternative holidays in full.

Time in lieu is a contract term. No Act gives time off for extra hours on an ordinary day. Employment New Zealand says pay for overtime or extra shifts has to be agreed and written into the employment agreement, for example factored into a salary or paid at the normal rate. Time off instead of overtime pay is one way an agreement can handle it, and then the agreement or policy sets every rule.

One limit follows from the Holidays Act. Its entitlements are minimums, and an agreement that reduces them has no effect to that extent. Time in lieu cannot stand in for the time and a half or the alternative holiday owed for working a public holiday, although you can give it on top.

From 6 August 2028, the Employment Leave Act 2026 turns alternative holidays into alternative leave, earned an hour for each hour worked on a public holiday that is an otherwise working day. That will look a lot like time in lieu, but it stays a legal right. The same Act calls extra hours someone can refuse, and is paid an additional payment for, additional hours, and they earn a leave compensation payment of at least 12.5% of the ordinary hourly rate. How a time in lieu arrangement fits that will depend on its wording, so revisit it when Employment New Zealand publishes its guidance on hours.

What the agreement should say

Because the law is silent, a time in lieu clause or policy is only as good as its detail. The government's Employment Agreement Builder, which Employment New Zealand links to, has a sample overtime clause to start from. A workable arrangement answers these questions:

• Which hours earn it. Hours beyond the agreed weekly hours, and whether they need a manager's approval first.
• At what rate. Hour for hour, or time and a half to match an overtime rate. Whatever is agreed, write it as a rate, not as "a fair amount".
• Who agrees when it is taken. How much notice, and what happens if the two of you cannot agree on a date.
• A cap. The most that can build up before it has to be taken or paid.
• Expiry. Whether hours must be used within a set time, and what happens if they are not: paid out at the agreed rate, or something else.
• Leaving. Whether an unused balance is paid in the final pay.
• The balance. Where it is kept and how the person sees it.

Who the arrangement covers matters as much as the rate. For salaried staff whose agreement says the salary covers reasonable extra hours, time in lieu is often a goodwill practice rather than a written term, and that is where disputes start. If you offer it, put it in writing, and change it only by agreement.

Recording it hour for hour

Section 130 of the Employment Relations Act 2000 already requires a wages and time record showing the hours each employee worked each day in a pay period and the pay for those hours. For salaried staff, a statement of usual hours can cover a normal week, but you must record any additional hours needed to show you have met minimum entitlements. Section 4B adds a general duty to keep records detailed enough to prove it. Time in lieu sits on top of both: the extra hours are hours worked, and they belong in the record whatever you give for them.

A good time in lieu record has four parts:

• The hours worked, with start, finish and unpaid breaks, written on the day.
• The hours earned, at the agreed rate, so 3 extra hours at time and a half shows as 4.5.
• The time taken, as dates and hours, never just "Friday afternoon off".
• A running balance the person can see. Employment New Zealand's payslips page lists a time in lieu balance as something a payslip may show.

Keep it with your wages and time record for six years, the period an employee can ask to see. Our article on wage and time records sets out the rest of what you must keep.

Team timesheets from jobtracker.co.nz shows the extra hours your people choose to share, by person, as they log them, and if you add a "Time in lieu" task to a team project, extra hours logged against it are totalled by person in the report and listed entry by entry in the CSV. It does not keep time in lieu balances or subtract the time people take off, so that balance stays in your payroll or leave records. Staff can keep their own record too: hours logging in Your Timesheets is free, with start, finish, breaks and a note on each entry, so extra hours can be marked "time in lieu" in the note.

Expiry, payout and leaving

No Act says an unused time in lieu balance must be paid out, so what happens depends on what was agreed. That is why expiry and leaving are the clauses worth the most care.

An expiry date keeps balances from growing for years, but a rule that lets hours lapse when the person had no fair chance to take them leaves them with extra hours for nothing. It is the clause most likely to end in a dispute, and for anyone near the minimum wage it can cause the problem in the next section. Paying out hours that reach the expiry date is the safer default.

On leaving, say plainly whether an unused balance is paid in the final pay, and at what rate. The reverse also comes up: someone who took time off before earning it, and then leaves. Recovering that from final pay is a deduction, and under the Wages Protection Act 1983 a deduction needs the employee's written consent or written request. A general deductions clause counts as consent, but you must consult them before making a specific deduction under it, and no deduction may be unreasonable.

If you and an employee disagree about a balance, Employment New Zealand on 0800 20 90 20 and its free mediation service can help, or talk to your union or an employment lawyer.

The minimum wage check

Time in lieu does not change the minimum wage. Under section 6 of the Minimum Wage Act 1983, every worker is entitled to be paid for their work at no less than the minimum rate, whatever the agreement says, and Employment New Zealand says that applies to overtime as much as to normal hours. The adult minimum wage is $23.95 an hour from 1 April 2026, and the starting-out and training rates are $19.16.

For someone paid by the week, the Minimum Wage Order 2026 sets the minimum at $958 a week, plus $23.95 for each hour over 40 worked in that week. For anyone paid another way, such as fortnightly or monthly, it is $1,916 a fortnight, plus $23.95 for each hour over 80 worked in that fortnight. Employment New Zealand's check for salaried staff is the same idea: divide the pay by the hours worked in the pay period.

This worked example is arithmetic. A salary of $52,000 a year, paid weekly, is $1,000 a week. In a 50-hour week the minimum is $958 plus 10 hours at $23.95, which is $1,197.50, so that week falls $197.50 short. Giving 10 hours off the following week does not add any pay to the week the long hours were worked. Where a salary sits close to the minimum, long weeks need paying, not banking, and the hours record is how you show you did.

Extra hours on the record, as they happen