Holiday pay and the December payroll: what you owe and when
Every year, somewhere around the second week of December, an employer looks at their payroll summary and thinks, "That can't be right."
It usually is. The December payroll is the biggest and most complicated pay run of the year for most NZ businesses. Leave gets paid out in advance, public holidays stack up, and anyone who hasn't been with you a full year needs a different calculation altogether. All of it lands just as your customers slow down their payments to you.
You can see it coming, so you can plan for it. Here's what you owe, when you owe it, and how to get ready now.
Why December is different
In a normal month, payroll is predictable. Same people, same hours, same rates.
December changes that. Many businesses close over Christmas and New Year, so staff take annual leave all at once. Four public holidays fall within a fortnight. And employees often ask to have their holiday pay before the break, which pulls weeks of wages forward into a single pay run.
That can make the December pay run far bigger than a normal one, and it's paid out right before the quietest weeks of the year.
The public holidays this summer
Here's how the 2026/27 holidays fall:
- Christmas Day: Friday 25 December
- Boxing Day: Saturday 26 December, observed on Monday 28 December for staff who don't normally work Saturdays
- New Year's Day: Friday 1 January 2027
- Day after New Year's Day: Saturday 2 January, observed on Monday 4 January for staff who don't normally work Saturdays
If a public holiday falls on a day your employee would otherwise work, they're paid for it, even if your business is closed. It doesn't come out of their annual leave. If they do work on a public holiday, they're paid at least time and a half, and if it's an otherwise working day they also earn an alternative holiday (a day in lieu).
Annual closedowns: the rules worth knowing
You can require your team to take annual leave during a closedown, as long as you give them at least 14 days' notice. You can only do this once a year.
How you pay them depends on whether they've earned their annual leave yet.
Employees with 12 months or more of service are paid their annual leave at the greater of their ordinary weekly pay or their average weekly earnings over the last 12 months. That second figure includes overtime, commission and bonuses, and it's where a lot of underpayments start.
Employees who haven't completed 12 months aren't yet entitled to four weeks' leave. For a closedown, they're paid 8% of their gross earnings since they started, less any holiday pay already paid. Their anniversary date then moves to the start of the closedown. If 8% doesn't cover the whole break, you can agree to let them take some leave in advance, but you can't make them.
Paying leave before the break
If an employee asks, you must pay their annual holiday pay before their holiday starts, rather than on their usual payday. Plenty of staff ask for this before Christmas.
For your cashflow, that means the money leaves your account in mid December rather than spread across January. Build it into your forecast now so you're not caught short when you process the pay run.
What it costs, and when it's due
The December payroll usually includes:
- Annual leave paid in advance for the closedown
- Public holiday pay for the days that fall on normal working days
- Any Christmas bonuses or overtime from the pre-Christmas rush
- PAYE, KiwiSaver and ESCT on all of the above
The last item is the one people forget. The PAYE on your December pay run is due to IRD in January, the same month GST and provisional tax are due for many businesses. That's a lot of money going out in the quietest month of the year.
A quick note on the Holidays Act
You may have seen news about the Holidays Act being replaced with a new hours-based system. That change isn't due to take effect until 2028. This summer, the current Holidays Act rules still apply.
How to get ready
Check your leave balances now. Run a leave report in your payroll software and see who's owed what. Look out for anyone sitting on a big balance, and anyone who'll still be short of 12 months' service at Christmas.
Confirm your closedown dates. Decide when you're closing and reopening, and give your team written notice well before the 14 day minimum.
Forecast the December pay run. Estimate the leave, public holiday pay and bonuses, then add the PAYE. Put that number into your cashflow forecast for the week it will actually be paid.
Set the January tax money aside. The PAYE, GST and provisional tax due in January all need cash that's sitting there before you close for the break.
Need a hand?
Holiday pay is one of the most common places for small businesses to get payroll wrong, and the December pay run is where mistakes show up. If you'd like someone to check your leave calculations or build your summer forecast with you, we'd love to help.