How to calculate annual leave for final pay when an employee resigns after parental leave
When an employee resigns after parental leave, the calculation of their annual leave for their final pay will depend on:
Whether they return to work first or leave directly from parental leave.
When they became entitled to leave and how much leave they have accrued.
Annual leave entitlement date
New Zealand employees are entitled to four (4) weeks of annual leave after 12 months of continuous employment. The timing of this annual leave entitlement date plays a key role in how final pay is calculated.
If the employee resigns while still on parental leave
If an employee does not return to work after parental leave, their final holiday pay is based on their leave balance as of their last working day before starting parental leave. This means:
Any entitled leave they had not used before parental leave is paid at the higher of their ordinary weekly pay or their average weekly earnings.
Any unused annual leave they had accrued between their last anniversary date and their last day of work before starting parental leave is paid at 8% of their gross earnings.
They do not receive a payout for any accrued leave from their time on parental leave.
Note: in these circumstances, their gross earnings do not include any payments for Keeping-in-Touch (KIT) hours worked while the employee was on parental leave.
If the employee returns to work before resigning
If an employee returns to work first and then resigns, their annual leave entitlement date matters when it comes to calculating final pay.
Their final pay includes:
Any annual leave they were entitled to before parental leave they hadn’t used is paid at the higher of their ordinary weekly pay or average weekly earnings.
Any annual leave they became entitled to while on parental leave or in the 12 months after their return from parental leave and that they hadn’t used is paid out at their average weekly earnings only (due to the parental leave override).
Any unused annual leave they had accrued between their last anniversary date and their last day of work is paid at 8% of their gross earnings.
Returning to work before resigning means employees receive a payout for leave accrued during parental leave, but the amount they receive may be lower than expected due to the parental leave override rules.
Best practice
Final pay calculations can often cause confusion for employees, especially when they don’t fully understand how parental leave affects their entitlements.
For employers, it’s important to explain this to employees before they go on parental leave, as it can help employees make informed decisions about their leave and manage expectations around how their leave entitlements will be calculated when they return or resign.
Always provide employees with a clear breakdown of their final pay, including how their annual leave has been calculated. If you have questions, Employment New Zealand’s Final Pay Guide is an excellent resource for verification.
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Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 1 April 2025.
Stephanie Pow
Founder & CEO of Crayon
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