Navigating Parental Leave Entitlements and Payments in New Zealand: A Comprehensive Guide for Employers

Parental leave in New Zealand is one of the most complex areas of employment law that employers must navigate. With multiple leave types, varying eligibility criteria, government-funded payments administered by Inland Revenue, and specific rules governing how annual leave must be calculated when employees return, getting parental leave wrong can expose your business to significant compliance risks and employee relations issues.

What many employers and employees don't realise is that the complexity doesn't end when the employee returns to work. Under the Parental Leave and Employment Protection Act 1987 and the Holidays Act 2003, the way annual leave payments are calculated changes fundamentally for up to 12 months after an employee's return. This catch - often discovered only when pay packets don't match expectations - can create frustration, disputes, and compliance failures.

This comprehensive guide breaks down everything New Zealand employers need to know about parental leave entitlements, payments, and the critical annual leave calculation rules that apply when staff return from parental leave.

Understanding the Types of Parental Leave in New Zealand

New Zealand's parental leave framework comprises several distinct leave types, each with different eligibility requirements, duration, and purposes. The Parental Leave and Employment Protection Act 1987 establishes the legal framework for these entitlements.

Primary Carer Leave

Primary carer leave is the cornerstone of New Zealand's parental leave system. This is unpaid, job-protected leave of up to 26 weeks available to the person who will be the primary caregiver for a new child. If the employee has a spouse or partner, they must nominate who will be the primary carer - there can only be one primary carer at any given time.

Primary carer leave can begin up to six weeks before the expected due date, or earlier if directed by the employer where it becomes unsafe or impractical for a pregnant employee to continue working. For adoptions, whāngai arrangements, or other situations where the employee becomes the permanent primary carer of a child under six years, the leave begins on the date care commences.

Extended Leave

Extended leave provides an additional 26 weeks of unpaid, job-protected leave, usually taken after primary carer leave ends. This brings the total potential parental leave to 52 weeks (one year). Extended leave is only available to employees who meet the 12-month employment test. Two parents can share extended leave between them, provided both meet the relevant eligibility criteria.

Partner's Leave

Partner's leave (previously known as paternity leave) is unpaid, job-protected leave for the spouse or partner of the primary carer. The duration depends on the partner's length of service: one week if they meet the six-month employment test, or two weeks if they meet the 12-month employment test.

Partner's leave can be taken from 21 days before the expected due date until 21 days after the birth (or the date the partner becomes the primary carer of a child under six). This timing can be varied by agreement between the employer and employee.

Special Leave

Pregnant employees are entitled to up to 10 days of unpaid special leave for pregnancy-related reasons before parental leave begins. This covers attendance at antenatal classes, medical appointments, scans, and midwife visits. Special leave is separate from and in addition to other parental leave entitlements.

Negotiated Carer Leave

Employees who don't meet the standard eligibility criteria for parental leave may apply for negotiated carer leave. This is a voluntary agreement between employer and employee that allows time off to care for a new child. While employers can decline negotiated carer leave on specified business grounds, they must respond within one month and provide written reasons for any refusal.

Eligibility Criteria: The Six-Month and Twelve-Month Tests

Parental leave eligibility in New Zealand is determined by two employment tests, calculated from the expected due date or the date the employee becomes the primary carer of a child.

Critical note for subsequent children: Even if an employee has worked for you for years, they need to have been back at work for the required period since their last parental leave. An employee who took 12 months' parental leave must be back at work for 12 months before they're eligible for another 12 months of parental leave for a subsequent child.

Government-Funded Parental Leave Payments

It is essential to understand that parental leave and parental leave payments are separate entitlements with different eligibility requirements and administration. There is no legal obligation in New Zealand for employers to pay employees during parental leave. However, government-funded parental leave payments are available through Inland Revenue for eligible employees and self-employed people.

Payment Eligibility

To qualify for parental leave payments, an employee must have worked for an average of at least 10 hours per week for any 26 of the 52 weeks immediately before the expected due date or the date they become the primary carer. This eligibility test is different from the six-month and twelve-month tests for parental leave itself. Importantly, this 26-week work history can be across multiple employers or include self-employment.

Payment Rates (2024-2025)

The payment amount is calculated as the higher of the employee's ordinary weekly pay or their average weekly income, up to the maximum payment cap. Inland Revenue calculates this by finding the 26 weeks where the employee earned the most income within the 52-week period before the due date, then averaging this amount.

Duration and Transferability

Eligible employees receive parental leave payments for a continuous period of 26 weeks. The primary carer can transfer some or all of their payment entitlement to an eligible spouse or partner. If the employee returns to work before the 26 weeks are complete, payments stop. The 'keeping in touch' provisions allow employees to work up to 64 hours during their parental leave period (but not within the first 28 days after birth) without affecting their payments.

The Hidden Complexity: Annual Leave Payments After Parental Leave

⚠️ This is where many employers and employees get caught out. Understanding this section is critical for compliance.

Under the Parental Leave and Employment Protection Act 1987, time spent on parental leave counts as continuous service for employment purposes. This means an employee's entitlement to annual holidays is not affected by parental leave—they still become entitled to their minimum four weeks of annual holidays for each entitlement year.

However, the payment calculation for those annual holidays is significantly affected.

The Average Weekly Earnings Rule

Normally, annual holiday pay is calculated at the greater of: (1) Ordinary Weekly Pay (OWP) at the time the holiday is taken, or (2) Average Weekly Earnings (AWE) over the 12 months before the end of the last pay period before the holiday.

But for employees who have been on parental leave, a special rule applies: Annual holidays that the employee becomes entitled to during parental leave, or in the 12 months following their return, must be paid at the rate of their Average Weekly Earnings over the 12 months immediately before the annual holidays are taken.

This means the normal 'greater of' calculation does not apply. The AWE calculation is mandatory for these entitlements.

Why This Matters: A Practical Example

Consider Sarah, who earns $1,500 per week. She takes 12 months of parental leave, returns to work, and three months later wants to take her annual leave.

Under the normal 'greater of' calculation, her annual leave would be paid at her current Ordinary Weekly Pay of $1,500 per week.

However, because she's within 12 months of returning from parental leave, her annual leave payment must be based on AWE. Looking at the 12 months before she takes leave, nine of those months were unpaid parental leave. Her AWE calculation would therefore be significantly lower than her current salary - potentially resulting in holiday pay of only $375 per week (if she was only earning for three months of the 12-month calculation period).

This often comes as an unwelcome surprise to employees who expect their annual leave to be paid at their normal rate. The gap between expectation and reality can be substantial.

Pre-Existing Leave Entitlements

There is one important exception: if the employee had accrued annual leave entitlements before going on parental leave that they hadn't taken, the normal 'greater of' calculation applies to that leave. The AWE-only rule applies specifically to entitlements that arise during or in the 12 months after parental leave.

Taking Annual Leave Before or During Parental Leave

Employees can take annual holidays (or other paid leave) at the start of their parental leave. When they do this, their parental leave payment period starts at the end of their paid leave. Additionally, employees can cash up a maximum of one week of the annual holidays they become entitled to while on parental leave.

Job Protection and Return to Work

Employers are generally required to keep an employee's position open during parental leave. However, if the position is a 'key position' that cannot reasonably be kept open, or there is a genuine redundancy situation, employers may not be required to hold the position. In these cases, the employee has a 26-week 'period of preference' after their parental leave ends, during which they must be offered any similar positions that become available before other candidates.

Employees must notify their employer at least 21 days before the end of their parental leave whether they intend to return to work. Employers are not obligated to allow employees to return on different conditions (such as reduced hours) unless this is agreed.

Key Considerations for Employers

•      Accurate record-keeping is essential: Track hours worked, leave dates, entitlement accruals, and payment calculations meticulously. These records may need to be produced for Labour Inspectorate audits.

•      Communicate proactively: Explain to employees how their annual leave payments will be calculated when they return from parental leave. This prevents surprises and maintains trust.

•      Understand the different eligibility tests: Parental leave (from the employer) and parental leave payments (from IRD) have different eligibility criteria. An employee might qualify for one but not the other.

•      Be aware of the 12-month AWE rule: This special calculation applies to annual leave entitlements arising during parental leave and for 12 months after return. Your payroll system must be configured to handle this correctly.

•      Consider keeping in touch days carefully: While these allow limited work during parental leave, the rules are specific—no work in the first 28 days after birth, and maximum 64 hours total.

•      Plan for coverage: When an employee notifies you of upcoming parental leave, plan early for coverage, whether through fixed-term contracts, secondments, or workload redistribution.

Why Professional Payroll Support is Essential

The intersection of the Parental Leave and Employment Protection Act 1987 and the Holidays Act 2003 creates calculation complexities that many standard payroll systems struggle to handle correctly. The post-parental leave AWE calculation, in particular, requires specific configuration and understanding that goes beyond simple payroll processing.

Getting these calculations wrong doesn't just create compliance exposure - it damages employee relationships at a time when returning parents are already navigating significant life changes. Underpaying annual leave creates immediate problems; overpaying creates problems that compound when employees leave and final pay calculations must be reconciled.

Professional payroll providers with deep understanding of New Zealand employment legislation can ensure your parental leave calculations are correct from the start, your annual leave payments are calculated accurately when employees return, your records will withstand regulatory scrutiny, and your employees understand their entitlements and payments.

Legislative Sources and References

•      Parental Leave and Employment Protection Act 1987

•      Holidays Act 2003

•      Employment New Zealand – Leave and Holidays Guide (2021)

•      Ministry of Business, Innovation and Employment – Holidays Act 2003 Guidance

•      Inland Revenue – Paid Parental Leave (www.ird.govt.nz/paid-parental-leave)

Need Help with Parental Leave Compliance?

Paymasters provides comprehensive payroll services that ensure your parental leave calculations comply with New Zealand law. Contact us to discuss how we can support your business through these complex compliance requirements.