Employees in New Zealand are provided with a minimum of four weeks’ annual holidays after each 12 months of continuous employment. Employment law recognises the importance of allowing employees to take paid time off, so that they can decompress from work related stresses and to rest and rejuvenate. Ultimately this will benefit the employer as it contributes to the wellbeing of their employees.
Once an employee becomes entitled to annual leave, holidays can be taken at any time agreed between the employer and the employee. Employees must be given the opportunity to take their annual holiday each entitlement year and to take at least two of the four weeks’ holidays continuously, if they wish to do so
Who is entitled to annual holidays?
Employees get their annual holiday entitlements on their first and subsequent 12-month anniversaries after starting work. Below are some common situations:
Where employees are permanently employed on a constant work pattern: On each anniversary of their commencement date the employee is entitled to four weeks of paid annual holidays. For example, an employee that works two days a week will be entitled to eight days of paid annual leave.
Where an employee is engaged on a permanent basis but works an irregular or changing work pattern: The employee would be entitled to four weeks annual holidays after the first and every subsequent 12-month anniversary of employment. The value of the four weeks annual leave would be determined at the time the annual leave is paid out. Alternatively, the employer and the employee can reach an agreement on what ‘four weeks’ will be in terms of time away from work. Ideally this agreement should be made when the work pattern changes and should be recorded in writing.
Where an employee is employed on a fixed term of less than 12 months: The employee is ordinarily paid their annual holiday pay at a rate of 8% of their gross earnings, with and on top of their regular pay. Payment is made on a ‘pay-as-you-go’ basis. This reflects that the employee is not expected to reach the date on which they qualify for annual holidays. Any such arrangement should be included in the employment agreement, and the 8% should appear as a separate and identifiable amount on the employee’s pay slip. On the completion of the fixed term the employee will have received all pay for annual holidays. No further payment will be outstanding, and no annual holidays will be available.
Where an employee is employed as a casual employee: Where the employee’s employment pattern is so intermittent or irregular that it is not possible or practicable to attempt to provide four weeks’ paid annual holidays, the employee may be paid annual holidays at a rate of 8% of their gross earning with and on top of their regular pay. Payment is made on a ‘pay-as-you-go’ basis.
Annual holiday entitlement does not expire. Employees are entitled to their annual holidays until they either take the holidays or cash them out, in compliance with the Holidays Act 2003 (the Act).
When should payment for annual holidays be made?
An employer must pay an employee for an annual holiday before the holiday is taken unless the employer and employee agree that they can be paid in the next applicable pay run.
Where the employee’s employment has come to an end, the employer must pay the outstanding annual holiday pay in the pay run that relates to the employee’s final period of employment.
Leave without pay and annual holidays
If an employee is receiving weekly ACC payments or is on parental leave, this is considered continuous employment and therefore the employee will still be accruing leave. But this will impact on the calculation of annual leave payments.
In other instances, where an employee takes a continuous period of leave without pay which exceeds one week, this may affect annual leave calculations by extending their annual leave anniversary date. Alternatively, an employer and employee in these circumstances can agree that there will be no change to the date on which the employee becomes entitled to annual leave, but that the annual leave calculation will take into account the period of leave without pay.
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Annual leave entitlements in employment agreements
The annual leave entitlements outlined above are minimum requirements and are legislated under the Holidays Act 2003. While an employee cannot receive less than this, employment agreements can increase annual leave entitlements. For example, an employer may agree to grant an additional week of annual leave once the employee has been employed for 5 years with them.
Using annual leave over a closedown period
In terms of the Act, employers can have a customary closedown of all or part of their operations once a year and require employees to take annual holidays during the closedown, even if an employee is required to take unpaid leave. The employer is required to give their employees 14 days’ notice in this respect. Christmas is the most common time for a closedown.
Requiring employees to take annual leave
Besides an annual closedown, if an employer and employee cannot agree as to when annual leave is to be taken, the employer can give the employee 14 days’ notice, requiring or directing them to take their annual holiday entitlement.
Declining annual leave requests
An employer may decline a request for annual leave if they have a genuine business reason for doing so. However, the Act specifies that an employer must not unreasonably withhold consent. This means that the employer must have considered the employee’s request and provide a valid business reason as to why such leave was declined. For example, another employee has already requested leave for this period, or it is a busy period for the business and annual leave cannot be granted during this time.
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Annual leave after employment ends
Unused annual leave must be paid out at the end of employment no matter how the employment ends (unless the employer is making a valid deduction).
The Act provides two ways to calculate payment for annual holiday entitlements at the end of employment:
- Where the employment ends within 12 months (before the employee is entitled to annual holidays) and
- Where the employment ends after the 12 months (that is, where an entitlement to take annual holidays has arisen for the first and any subsequent year’s employment).
Where employment ends before they have completed their first 12 months of service, they are entitled to a payment for annual holidays of 8% of gross earnings during the employment. This entitlement is reduced by any payment for annual holidays taken in advance or by any payment for annual holidays on a pay-as-you-go-basis.
Where employment ends after the employee becoming entitled to annual holidays, the first amount to be calculated is the greater of ordinary weekly pay, relevant daily pay or average weekly earnings for the annual holidays to which the employee is entitled under the Act, as if the holidays were being taken at the end of the employment.
The second amount to be calculated is annual holiday pay for the period since the employee last became entitled to holidays, which is calculated at 8% of gross earnings since the entitlement last arose. The payment for any annual holidays taken in advance is deducted from the final amount.
Administration and annual holidays
It is best practice to insist any requests for holiday or leave must be made in writing.
All records of annual holidays or annual leave must be in writing, including the approvals and the decline of annual holidays.
The annual holiday records of employees should be provided to payroll for accurate entitlements and payments.
Annual leave entitlement is covered in key legislation with specific criteria around how it is implemented, accrued, utilised and paid. For expert advice, please contact the team at Peninsula.
