Alternative holidays — commonly known as “lieu days” or “days in lieu” — are one of the most misunderstood aspects of New Zealand employment law. When an employee works on a public holiday, they may be entitled to an alternative paid day off in addition to the premium pay they received for working the holiday. Getting this wrong is one of the most common Holidays Act compliance failures, and it has cost New Zealand businesses millions in back-pay remediation.
This guide explains when alternative holidays apply, how to calculate payment, when they must be taken, and how to avoid the mistakes that trip up so many employers.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For guidance specific to your organisation, consult a qualified employment lawyer or visit Employment New Zealand.
What Is an Alternative Holiday?
Under the Holidays Act 2003, when an employee works on a public holiday, they are entitled to:
- Time-and-a-half pay for the hours worked on the public holiday, AND
- An alternative holiday (a paid day off to be taken at a later date) — but only if the public holiday falls on a day that would otherwise be a working day for that employee
The alternative holiday is essentially a replacement for the public holiday the employee missed by working. It is a full paid day off, separate from the premium pay the employee received for working on the holiday itself.
When Does an Employee Get an Alternative Holiday?
This is where many employers get confused. An employee gets an alternative holiday when both of the following conditions are met:
- The employee works on a public holiday
- The public holiday falls on a day that would otherwise be a working day for that employee
The “Otherwise Working Day” Test
The critical question is whether the public holiday would have been a normal working day for the employee. This is straightforward for employees with fixed schedules (e.g. Monday to Friday), but it gets complicated for employees with variable or rotating rosters.
For fixed-schedule employees: If an employee normally works Monday to Friday and a public holiday falls on a Wednesday, then Wednesday is an “otherwise working day.” If they work that day, they get an alternative holiday.
For variable-schedule employees: You need to look at the employee’s work pattern to determine whether they would have worked that day if it had not been a public holiday. Factors to consider include:
- The employee’s usual roster or work pattern
- Whether the employee would have worked on that day but for the public holiday
- The employer’s rosters or schedules for the relevant period
- Any other relevant factors
If the employee would not have worked that day anyway (for example, it falls on their regular day off in a rotating roster), they do not get an alternative holiday — though they still receive time-and-a-half for the hours they actually worked.
Casual and On-Call Employees
For casual employees or employees with no set roster, the “otherwise working day” test can be difficult to apply. Employment New Zealand suggests looking at the employee’s pattern of work over a reasonable period to determine whether they would have worked on that day.
If a casual employee regularly works every Tuesday and a public holiday falls on a Tuesday, it is likely an otherwise working day. If a casual employee has no predictable pattern, you may need to make a reasonable assessment based on the available evidence.
How Much Is the Alternative Holiday Worth?
When an employee takes their alternative holiday, they are paid their relevant daily pay (RDP) for that day, or their average daily pay (ADP) if RDP cannot reasonably be determined.
Relevant Daily Pay
Relevant daily pay is the amount the employee would have earned on the day they take the alternative holiday. This includes:
- Base wages or salary
- Regular allowances
- Regular overtime (if it would have been worked)
- Productivity or piece-rate payments (if regular)
Average Daily Pay
If the employee’s daily pay varies and RDP cannot reasonably be determined, you use average daily pay: the employee’s gross earnings over the last 52 weeks, divided by the number of whole or part days worked in that period.
Important: The Alternative Holiday Payment Is Separate from the Public Holiday Payment
On the public holiday itself, the employee receives time-and-a-half. When they later take their alternative holiday, they receive their relevant daily pay (or average daily pay). These are two separate payments for two separate entitlements.
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When Must the Alternative Holiday Be Taken?
The Holidays Act does not set a specific deadline for when an alternative holiday must be taken. However, there are rules about how it should be arranged:
Employee Request
The employee can request to take their alternative holiday at any time. The employer must allow them to take it, provided:
- The employee gives reasonable notice
- The employer does not have genuine business reasons to refuse the specific date requested
Employer Cannot Force the Timing
An employer cannot unilaterally direct an employee to take an alternative holiday on a specific date. The timing must be agreed between the employer and employee. If they cannot agree, the employee gets to choose the date, as long as they give reasonable notice.
What If the Employee Never Takes It?
Alternative holidays do not expire. They accumulate until they are taken or paid out on termination. This means that if you have employees with untaken alternative holidays from years ago, those days are still owed.
This is a significant compliance risk. Many employers discover during payroll audits that they have large, untracked alternative holiday balances that need to be paid out.
Payment on Termination
When an employee’s employment ends, any untaken alternative holidays must be paid out. The payment is calculated at the employee’s relevant daily pay at the time of termination.
This applies regardless of the reason for termination — resignation, redundancy, dismissal, or end of a fixed-term agreement. You cannot forfeit or “expire” untaken alternative holidays.
Transferring Alternative Holidays by Agreement
Under the Holidays Act, an employer and employee can agree to transfer a public holiday to another working day. This is different from an alternative holiday — it means the public holiday is observed on a different day entirely.
For example, if your business operates on Christmas Day but closes on the following Monday, you could agree with employees to transfer the Christmas Day public holiday to Monday. In this case:
- The transferred day becomes the public holiday
- If the employee works on the actual public holiday (Christmas Day), they receive normal pay (not time-and-a-half) because the holiday has been transferred
- If the employee works on the transferred day (Monday), the normal public holiday rules apply
This must be a genuine agreement — you cannot unilaterally transfer public holidays.
Mondayisation and Alternative Holidays
When a public holiday falls on a Saturday or Sunday, and that day is not an otherwise working day for the employee, the holiday is “Mondayised” — it moves to the following Monday (or Tuesday if Monday is also a public holiday).
How This Affects Alternative Holidays
If a public holiday is Mondayised and the employee works on the Mondayised day, the standard rules apply:
- The employee receives time-and-a-half for working on the Mondayised public holiday
- If the Mondayised day is an otherwise working day, the employee also gets an alternative holiday
However, if the employee normally works weekends and the original public holiday falls on their working Saturday or Sunday, the holiday is not Mondayised for them. They observe the holiday on the actual day, and the Mondayisation rules do not apply.
This creates a situation where different employees in the same organisation may observe the same public holiday on different days, depending on their roster. It is one of the more complex aspects of public holiday management in New Zealand.
Calculating Time-and-a-Half for the Public Holiday
When an employee works on a public holiday, their pay for that day is calculated as follows:
Time-and-a-half = Relevant daily pay × 1.5
For hourly employees, this is straightforward: their hourly rate × 1.5 × hours worked.
For salaried employees, you need to determine what their relevant daily pay would be, then multiply by 1.5.
Common Calculation Mistakes
- Forgetting to include regular allowances in the time-and-a-half calculation
- Using a flat “daily rate” instead of calculating relevant daily pay properly
- Not paying time-and-a-half for the entire shift, including overtime worked on the public holiday
- Applying time-and-a-half only to the first eight hours and normal rates thereafter (the Act requires time-and-a-half for all hours worked on the public holiday)
Record-Keeping Requirements
The Holidays Act requires employers to keep records of:
- Every public holiday worked by each employee
- Whether each public holiday was an otherwise working day
- The payment made for each public holiday worked
- All alternative holidays accrued
- All alternative holidays taken
- All alternative holidays paid out on termination
These records must be kept for six years and be available for inspection by a Labour Inspector.
Common Compliance Mistakes
1. Not Tracking Alternative Holiday Balances
Many employers pay time-and-a-half for public holiday work but forget to accrue the alternative holiday. This is a breach of the Act and results in employees being short-changed.
2. Expiring Untaken Alternative Holidays
Alternative holidays do not expire. Some employers have policies that state lieu days must be taken within a certain period or they are lost. This is unlawful under the Holidays Act.
3. Paying Out Instead of Granting a Day Off
Unless the employee agrees or their employment is ending, you cannot simply pay out an alternative holiday in cash instead of providing the actual day off. The entitlement is to a paid day of leave.
4. Applying the Wrong Pay Rate
The public holiday is paid at time-and-a-half. The alternative holiday is paid at relevant daily pay (or average daily pay). These are different calculations, and mixing them up is a common error.
5. Incorrect Otherwise Working Day Assessment
If you wrongly determine that a public holiday was not an otherwise working day, the employee misses out on an alternative holiday they were entitled to. This is a frequent source of Holidays Act complaints.
6. Not Accounting for Part-Day Work
If an employee works part of a public holiday (say, a four-hour shift on an eight-hour otherwise working day), they still get a full alternative holiday. The alternative holiday is a full day, regardless of how many hours were worked on the public holiday.
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Practical Tips for Managing Alternative Holidays
Keep a Running Balance
Maintain a real-time balance of alternative holidays for every employee. This should be visible to both the employer and the employee, so there are no surprises at termination.
Encourage Employees to Take Their Lieu Days
While you cannot force employees to take alternative holidays, you can encourage them. Send reminders, make the booking process simple, and create a culture where taking lieu days is normal and expected.
Use Software to Track Entitlements
Manual tracking of alternative holidays is error-prone, especially for businesses with shift workers, casual staff, or rotating rosters. Leave management software like Leave Balance can automatically accrue alternative holidays when a public holiday is recorded as worked, calculate the correct pay rates, and maintain compliant records.
Review Rosters Before Public Holidays
Before each public holiday, review your roster to identify which employees are working and whether the holiday is an otherwise working day for each person. This proactive approach prevents disputes and ensures correct accrual.
Include Alternative Holiday Provisions in Employment Agreements
Your employment agreements should clearly explain the alternative holiday entitlement, including how otherwise working days are determined for employees with variable schedules. Clear communication prevents misunderstandings.
How Leave Balance Helps
Leave Balance simplifies alternative holiday management for New Zealand employers by:
- Automatically accruing alternative holidays when employees work on public holidays
- Tracking the “otherwise working day” determination for each employee
- Calculating the correct pay rate (relevant daily pay or average daily pay) for each alternative holiday taken
- Maintaining a running balance of untaken alternative holidays
- Paying out alternative holidays correctly on termination
- Keeping compliant records for Labour Inspector audits
Key Takeaways
Alternative holidays are a critical part of New Zealand’s public holiday framework. Every employer who has staff working on public holidays needs to understand and comply with these rules.
The key points to remember are:
- Employees who work on an otherwise working day public holiday get both time-and-a-half AND an alternative holiday
- The “otherwise working day” test is based on the employee’s normal work pattern
- Alternative holidays are paid at relevant daily pay (not time-and-a-half)
- Alternative holidays do not expire and must be paid out on termination
- Mondayisation affects which day the public holiday falls on, depending on the employee’s roster
- Accurate record-keeping is a legal obligation
Getting alternative holidays right protects your business from back-pay claims and ensures your employees receive the entitlements they have earned.