'Gross earnings' is an area many businesses overlook. It’s the foundation for several key calculations under the Holidays Act, and getting it wrong means errors flow through to annual leave payments, average daily pay, final pay, and more. The downstream effect is often bigger than people realise.
In this article I'll walk you through what gross earnings includes, what it doesn't, and how to calculate them correctly for your employees.
What should and shouldn't be included in gross earnings?
Gross earnings refers to all payments an employer is required to pay an employee under their employment agreement. It's the base figure for several calculations required under the Holidays Act, including:
ordinary weekly pay (when used to determine annual holiday payments)
average weekly earnings for annual holiday payments
average daily pay (when used instead of relevant daily pay) for public holidays, sick and bereavement leave, and alternative holidays
payment for annual holidays if the employee qualifies to be paid on an 8% pay-as-you-go basis
the 8% of gross earnings component in an employee's final pay
It's essential to understand what's included, but in practice, it's easier to focus on what's excluded:
reimbursements
any weekly compensation payable under the Accident Compensation Act 2001 that the employer isn't required to make
annual holiday payments that have been paid out instead of taken (up to one week per entitlement year)
any payments the employer isn't contractually required to make under the employment agreement (these will be genuinely discretionary and relatively rare)
redundancy payments
What to watch out for when calculating gross earnings
There are 2 specific situations worth keeping front of mind.
The first: if your employment agreement explicitly states that a payment is included in gross earnings, it must be included – even if that type of payment wouldn't normally be.
The second: if it's unclear whether a payment should be included, err on the side of including it, or get legal advice before deciding to leave it out.
Employee share benefits are a good example – whether they're included in gross earnings depends on their specific nature and how they're structured.
Above all, make sure you understand how your payroll system handles gross earnings, and that it aligns with both the Holidays Act and your specific employment situation.
How gross earnings affects an employee's final pay
Final pay is one of the trickier applications of gross earnings.
The calculation requires working out gross earnings from the employee's last leave anniversary date through to their final pay.
If that anniversary date falls in a previous pay period, some payroll systems can't calculate this correctly, which can result in an underpayment. It's worth knowing whether your system handles this automatically or whether it needs a manual check.
Want payroll peace of mind?
Because it underpins so many other calculations, getting gross earnings right is one of the most important things you can do to ensure your payroll obligations are being met.
If you're unsure how your payroll system is handling it, a payroll review is a good place to start.
Updated April 2026 | Originally published January 2022
About the author
Karyn Campbell is a New Zealand payroll consultant and founder of Payroll Consult. With 5+ years running her own consultancy and a background in payroll software – including roles across client support, onboarding, and partnership management at a leading NZ payroll provider – Karyn brings a rare combination of technical knowledge and real-world compliance experience. She works with business owners, bookkeepers, and payroll teams across New Zealand, specialising in payroll audits, system reviews, and fixing complex payroll issues for teams that don’t work a typical 9-5.
