How to make the most of your annual leave before (and after) parental leave
A little planning around your annual leave can make a big difference to your income during and after parental leave. Here are five smart strategies to help you get the most out of your leave entitlements — and reduce financial stress in a time of big change.
Note: the calculations around annual leave and parental leave can make your head spin — and every situation is a little different. We strongly recommend chatting with your payroll or HR team about your specific circumstances.
1. Calculate if using annual leave before parental leave could be worth more to you
Depending on when you use your annual leave, it could be paid at a higher or lower rate. Here’s why:
If you take annual leave after parental leave (or use leave you became entitled to during parental leave), your employer can legally pay you based on your average weekly earnings, not your ordinary pay. If your average dropped during leave, your leave payout could too.
Some employers choose to pay you your full ordinary rate regardless, but this isn’t guaranteed — always check.
If you return part-time, your remaining leave balance may be recalculated to reflect your reduced hours.
The takeaway: You may get more value by using your annual leave before your parental leave starts.
For more details, see our articles:
2. Plan around public holidays to stretch your pay
Annual leave taken near public holidays can go further, especially around long breaks like Christmas or Easter.
Example:
Baby due: 3 January 2024
You take 5 days of annual leave starting 22 December 2023
Those 5 days cover: 22, 27, 28, 29 Dec and 3 Jan
You’re also paid for public holidays: 25 & 26 Dec, 1 & 2 Jan
Result: You're paid for 9 days using only 5 days of annual leave.
Plan ahead using the official New Zealand public holidays calendar.
3. Consider cashing out leave for upfront cash flow
In New Zealand, you can request to cash out up to one week of annual leave per year if your employer agrees.
Why this could help:
It gives you extra income upfront when setup costs might be higher.
It may help you start PPL earlier and unlock Best Start payments sooner.
Note: New Zealand families are eligible for Best Start payments irrespective of household income. The payment is $73/week (as of May 2025) and continues until your child turns one. Most people wait for government-paid parental leave (PPL) to finish before Best Start payments begin. That said, you can request to start Best Start before PPL, pause it during PPL and resume after PPL finishes.
4. Ease your return to work with annual leave
Returning to work is a big shift, and annual leave can help make it smoother.
Ideas to consider:
Gradual return: Use annual leave to top up part-time hours so you’re paid as if you’re full-time. This gives both you and your baby time to adjust to new routines. In addition, securing your preferred days at daycare can be challenging, and you might need to pay for full-time daycare even before you return to full-time hours.
Trial runs: Take leave to test daycare, your commute, and your new routine.
Buffer days: Reserve some leave for those inevitable sick days when daycare starts.
Note: If you're using leave soon after returning, check how it will be paid — it may be based on your reduced average earnings. See The impact of parental leave on annual leave.
5. Combine with employer-paid parental leave
If your employer offers paid parental leave, you may be able to combine it with annual leave to maximise the time you’re paid at your full salary before transitioning to government support.
Check your workplace policy and clarify how leave types interact to avoid unintended gaps or overlaps. If you’re receiving more than one stream of income at the same time, such as annual leave and government-paid parental leave, you may need to apply a secondary tax rate to avoid a later tax bill.
Final thoughts
The way you time your annual leave can meaningfully affect your financial wellbeing during parental leave. A few smart decisions now can help reduce stress later.
Plan ahead
Check how your leave will be paid
Map public holidays and Best Start timelines
Talk to HR or your manager early
If you have any questions, refer to the Employment New Zealand website or speak with your HR department or manager.
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 6 May 2025.
Stephanie Pow
Founder and CEO, Crayon