Understanding Leave Entitlements and Variable Staff

Oct 19, 2021

If you had to ask your employees what the most important things are regarding their work life, they would probably highlight things such as being paid accurately and understanding their current leave entitlement.

Yes! Most people’s primary objective for being in employment is to earn money and make a living while being entitled to having specific leaves approved by law. Therefore, like any other business, it is crucial to manage your employees’ leave and payroll situation according to their contract of employment. 

In doing so, this will leave you and your team feeling refreshed and motivated to perform better, resulting in the smooth operation of your business!

Listed below are some ways to help your business thrive in these areas:


Leave Entitlements

Employees are entitled to four weeks of Annual Leave as per the holidays act, of which this should be a fair reflection of the employee’s regular working week or you must consider the days and hours the employee has actually been working. 

There are a few conditions where you can pay employees 8% of their gross earnings in lieu of 4 weeks Annual Leave. There are:

  1. If they have first agreed to this, and
  2. If the employee works so intermittently or irregularly, that it would be impracticable for the employer to provide them with 4 weeks annual holidays.


Xero Leave Calculations

Many small businesses in NZ who are already using Xero as their accounting software, simply add Xero payroll as an add-on, then happily go on their way paying their staff.

What they sometimes fail to take into account when doing this, is that Xero payroll works best for staff members who have a regular working pattern or those staff members who receive 8% of their earnings, paid as they go. 

For those businesses who have staff that have irregular work patterns, this software is not able to effectively calculate their leave entitlements without manual intervention. 

The reason for this is because Xero Payroll drives leave calculations by the days and hours we input in their employment section of payroll. This is a section that requests information about the hours and days they work per week. 

If we input at the beginning that an employee may be working 8 hours per day for 1 day per week, then Xero will assume they are entitled to 32 hours of leave for that year and will accrue per pay period based on this annual entitlement. 

If that individual then works 16 hours in the following week, 40 hours in another week and so on, Xero payroll will not adjust for this in the total annual holidays owed. Therefore in order to correctly advise the employee of their accrued leave entitlements, you would need to calculate this manually at each payrun and adjust this within the pay period, before processing a pay and issuing payslips.


Payroll best suited for irregular working patterns

The only software on the market currently able to accurately calculate the leave entitlements for employees with irregular working patterns, without manual intervention, is PayHero. 

This software calculates an accrual based on weeks per year (rather than hours). If an employee has an irregular working pattern, it will still accrue 4 weeks of annual holidays, however the total hours or days owed will be calculated based on a review period (which can be elected by the company). The default review period is 8 weeks. 

This means that the system will ask itself, at the point of both reporting leave balances to the employee and also paying annual holidays, “how many hours and days has this employee worked per week for the last 8 weeks”. It will then provide an average of those actual days and hours worked to determine what a regular week would look like for that employee. This then forms the basis of their entitlement. 

For example:

Anna is a Barista; she works for a local company and for the last 8 weeks her average hours and days per week have been 6.5 hours over 2.5 days.

At this moment in time, her annual holiday entitlement would be 52 hours as she would be entitled to 6.5 hours x 2.5 days x 4 weeks = 52 hours of Annual Holidays.

These 52 hours could be subject to change as she could work less hours over the next 8-week review period. 

Compliance to the holidays act requires us to consider the days and hours the employee has actually been working in the weeks leading up to the holiday being taken.



In a nutshell, successful businesses know the importance these little things play in order to have a thriving business and employee work life in the office.

Think you need a hand deciding which payroll software option best suits your business? Have no fear – Admin Army are your allies! Contact us today for a free no obligation discussion about how we can help you set up or convert your payroll software.


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