Last month I spoke with a business owner concerned about an employee complaint. The employee, a health worker who worked varied shifts, noticed he had been paid less on his public holidays than what he would have earned if he had worked those shifts.
This is a payroll situation I see often: a default way of doing things can unexpectedly lead you into underpayment territory.
Public holidays are one of the trickiest areas of New Zealand payroll because there are multiple rules at play. Whether someone works the public holiday or takes it off, whether they get time and a half, or whether they get an alternative holiday all depend on specific circumstances that your payroll system might not handle well automatically.
The default: Relevant daily pay
Relevant daily pay is what the employee would have actually earned on that specific day if they had worked, and using relevant daily pay to calculate employee public holiday earnings will always comply with the Holidays Act 2003.
Relevant daily pay includes everything the employee would have received:
Their normal wages or salary
Productivity or incentive payments they would have earned
Overtime they would have worked
It can feel easier to use average daily pay because it's simpler to calculate than relevant daily pay. Average daily pay takes the employee's total earnings over the last 52 weeks and divides it by the number of days they worked or were on paid leave.
But average daily pay is only meant to be used when it isn't possible or practical to determine relevant daily pay, or if the employee's daily pay varies within the pay period.
The government guidance is clear: relevant daily pay should be used wherever it can be determined.
Where average daily pay goes wrong
Here’s an example:
Emma is a nurse working a rotating roster. This fortnight she works Monday 12 hours, Wednesday 12 hours, Friday 6 hours. A public holiday falls on her Monday.
If Emma takes the public holiday off, relevant daily pay would look at her roster and pay her for the 12-hour shift she was meant to work that day. Average daily pay would average all her shifts together – giving her roughly 10 hours of pay and leaving her short-changed by 2 hours.
If Emma works the public holiday she gets time and a half for the 12 hours worked, plus a whole alternative holiday to take later. When she takes that alternative holiday on a different day, she should be paid for what she's rostered that day. But if the system uses average daily pay again, she loses hours on that day too.
Over a year, this adds up. An employee could be underpaid by hundreds or even thousands of dollars.
The same problem occurs with sick leave, bereavement leave, family violence leave, and alternative holidays. These five leave types (sometimes called FBAPS leave) all use the same calculation principles: relevant daily pay first, average daily pay only when you genuinely can't work out relevant daily pay.
Public holidays: what employees are entitled to
There are three situations that come up with public holidays, and each has different payment rules.
Taking a public holiday off
If a public holiday falls on a day that would otherwise be a working day for the employee (what the law calls an "otherwise working day"), they get the day off on pay. They're paid at their relevant daily pay or average daily pay for the day.
For Emma, Monday is an otherwise working day as she was rostered to work. She gets paid for the 12-hour shift using relevant daily pay.
For most employees working regular hours, the pay cycle continues unchanged. But if someone works variable patterns, you need to check: what would they have worked on that day? That's what they get paid.
If the public holiday falls on a day that isn't an otherwise working day for the employee, they're not entitled to payment for that day unless they work.
Working on a public holiday
If an employee works on a public holiday, they're entitled to two things.
First, they must be paid at least time and a half for the hours they actually work on the day. Time and a half means 1.5 times their relevant daily pay.
If Emma works her 12-hour public holiday shift, she gets paid 18 hours' worth of pay (12 hours x 1.5).
Second, if the public holiday falls on an otherwise working day for them, they also get a whole day's alternative holiday. They get this full day off even if they only worked part of the public holiday.
Alternative holidays
Alternative holidays recognise that the employee missed out on having a public holiday off work, so they can take another day off at a time agreed between the employer and employee.
When the employee takes their alternative holiday, they're paid at their relevant daily pay (or average daily pay if applicable) for the day they actually take it, not the day they worked.
For Emma, if she takes her alternative holiday on a Wednesday (a 12-hour day), she should be paid for 12 hours. If she takes it on a Friday (a 6-hour day), she should be paid for 6 hours. The payment matches what she would have earned that day.
Alternative holidays don't expire, but if they're unused 12 months after the employee became entitled to them, the employer and employee can agree to exchange them for payment.
What "otherwise working day" actually means
Whether a public holiday is an "otherwise working day" determines whether the employee gets paid for not working, and whether they get an alternative holiday if they do work.
In most cases, this is straightforward. If someone works Monday to Friday and the public holiday falls on a Monday, Monday is an otherwise working day.
It gets trickier with variable rosters. The employer and employee need to consider:
The employment agreement terms
The employee's usual work patterns
The employer's rosters
The reasonable expectations of both parties about whether the employee would have worked that day
For example:
An employee works Tuesday, Thursday, Saturday and Sunday. Good Friday falls on a Friday. Friday is not an otherwise working day for them because they don't normally work Fridays.
If they take the day off, they get nothing. If they work on Good Friday, they get time and a half for the hours worked, but no alternative holiday.
When to use relevant daily pay vs average daily pay
The government guidance recommends employers take a pragmatic approach and use their judgement. In many cases, determining relevant daily pay is simple because it's clear what the employee would have earned on the day if they had worked.
Even if it's not immediately obvious, that doesn't mean it can't be worked out. Look at the employee's work patterns and the reasons for any variation. If other employees worked unscheduled overtime on the day and this employee would have been required to work it too, include that overtime in relevant daily pay.
If you're genuinely unsure, calculate it both ways and use the higher amount. Your employees will trust that you're looking out for them, and you'll know you're not accidentally underpaying anyone.
Getting it right
Public holiday calculations are one of those payroll areas where the legislation is specific but the application requires judgement and patience. Your payroll system will follow the settings you've given it, but it doesn't know if those settings are right for each individual employee's situation.
If you're unsure whether your payroll system is calculating public holidays correctly, or if you have employees with variable work patterns and suspect there might be an issue, I can help.
A payroll audit will identify whether there are problems with how leave is being calculated and paid.
Sometimes it's a quick fix – adjusting settings or adding manual checks. Sometimes it requires rethinking how you're using your system. Either way, proactively fixing it before you need to will save you time, money, and stress.
Message me if you'd like to book a free 15-minute payroll audit to make sure your public holiday calculations are keeping you compliant.
And if you’d like some guidance on Annual Leave calculations, you might find these blogs helpful:
Annual leave pay - how to make sure your staff get paid correctly
Understanding Annual Leave – accrued, advanced and entitled leave
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.
