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Annual leave

Time away from work is vital for the health of your employees — so it’s vital for the health of your company too. Time off not only reduces stress, it has been shown to improve productivity once employees return to work.

What you need to know

You must:

  • give employees at least four weeks of paid annual holidays (not including public holidays or sick leave), either in full each year on the anniversary of their start date, or building up throughout the year
  • let them take at least two weeks at once if they want to
  • consider any request to pay out up to one week of their annual holiday entitlement, unless you have a policy stating you won’t cash up any annual leave
  • keep good records  of all leave to avoid disputes
  • give employees at least 14 days’ notice before an annual closedown.

You can also:

  • set limits on how much leave you’ll let employees carry over each year — let them know they’ll be made to take leave if too much builds up
  • make employees who’ve built up too much leave take some or all of it — if you and your employee can’t agree when the leave will be taken, you have to give them at least 14 days’ notice before requiring them to take leave
  • let your employees exchange up to a week of annual leave for cash each year (you can’t ask or pressure them to do this)
  • decline your employee’s request for leave if you have a good reason, eg an especially busy sales period
  • agree to let employees take paid leave in advance – you should ask them to agree in writing that if they leave the job before they’ve earned back the leave they’ve taken, you can deduct the outstanding amount from their final pay.
casestudy WeighingProsAndCons

Case study

Weighing pros and cons

Raul owns a kayak touring company in Nelson. Rachel, one of his best guides, has asked for two weeks off to attend her brother’s wedding in London. It’s in January — the height of the tourist season.

He looks into leave entitlements and finds he doesn’t have to grant Rachel’s request if the timing doesn’t suit the needs of the business.

Raul turns Rachel down, but says she can take two weeks off over winter to visit her family. Rachel resigns, telling Raul she can’t miss her brother’s wedding. When she returns from London, she goes to work for a rival company.

Raul loses a number of his repeat clients, who say they miss Rachel. Raul has stayed on the right side of the law, but has lost a valuable employee. Replacing her will take time and money, and he may never win back his lost clients.

Employees who work irregular hours or shifts

If an employee doesn’t have set hours, you can decide with them what four weeks' leave means and record this in their employment agreement (this should be continually updated).

Casual workers with no set hours can agree to be paid an extra 8% of their gross pay instead of accruing any annual leave.

This must be written into their employment agreement, and the 8% holiday pay should appear as a separate and identifiable amount on their pay slip.

The same applies to workers on fixed-term contracts of less than a year, as they are not expected to still be working for you on the date they’d otherwise qualify for annual holidays.

Leave during an annual closedown

If you have an annual closedown, eg the office or workshop is closed over Christmas and no one works, your employees have to take time off even if they don't have any annual leave.

You have to give 14 days' notice of the closedown. Employees must:

  • take annual leave over the closedown, or
  • take unpaid leave if they don't have any leave available.

If the closedown period includes any public holidays, you need to pay your staff for them if they fall on days they’d usually work.

casestudy BudgetForHolidayPay

Case study

Budget for holiday pay

In November, Simon bought a factory with an annual Christmas/New Year closedown. As required by law, Simon gives his employees more than 14 days’ advance notice of the closedown dates. He also calculates their holiday pay, and checks he’ll have enough incoming cash flow for the post-closedown pay round.

But employees are legally entitled to be paid for holidays before they take leave. This is to ensure they aren’t left out of pocket by holiday expenses.

In a panic, Simon realises he doesn’t have enough cash flow to pay his employees before the holiday period. He uses money from his personal bank account, and realises he must budget in future to pay his employees before they take holiday leave.

Less than a year employed?

Here’s what you should do for these new employees:

  1. Pay them 8% of their gross salary earned up to the shutdown start date, less any annual leave already taken.
  2. Change the date they become entitled to annual leave to one year on from the start of the shutdown.
  3. Let them take paid annual leave in advance (you both have to agree to this).
  4. Don’t forget to allow for paid public holidays if these fall on a day they usually work.
You must give employees 14 days’ notice of the closedown.

You must give employees 14 days’ notice of the closedown.

Read what Employment New Zealand says about annual closedowns (external link) .

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