Annual Leave

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employee taking annual leave

Annual leave

Aside from casual employees and some fixed term employees, every employee in New Zealand gets at least four weeks of paid annual leave (annual holidays) each year, intended to give them a chance to rest and relax away from work.

Although employees start accruing leave from their first day of work, the entitlement to take annual leave comes into effect after 12 months of employment, unless you wish to allow employees to take leave in advance of its accrual.

Annual leave entitlement date

The date at which an employee can take annual leave is the first anniversary of their employment. However, there are some exceptions to this rule if, for example, your business has an annual closedown period (such as Christmas), or if an employee has taken unpaid leave of more than one week throughout the year.

Employers should be aware that employment agreements may stipulate an additional amount of annual leave and may also outline a different length of time employees must have served in the business before being allowed to take annual leave or method of calculating leave.  This is allowed provided the minimum standards are met.

Annual leave accrual

For permanent employees who work the same working week every week, on each anniversary of their employment they are entitled to four weeks of paid annual holidays. In the case of a regular pattern of work, the four weeks is based on what genuinely constitutes a working week for that employee. For example, if an employee works three days per week their annual leave entitlement is 12 days per year.

Where you have employees that don’t work regular hours, or they do not have a regular week, it is not possible to define a week and therefore what constitutes a working week can only be determined at the time annual leave is taken.  There is a calculation to determine the portion of weeks used, which is particularly important if the work pattern varies or the employee’s work pattern has changed.

If you have employees that are genuinely casual, with no expectation or prospect of regular or ongoing work, then you are entitled to agree to pay on a ‘paid as you earn’ basis, if specific conditions are met.  This can also apply to an employee on a genuine fixed term of less than 12 months.  In these cases, an employee may be paid 8% of their gross weekly earnings on top of their pay as annual holidays provided it is specified in their employment agreement and is made clear to the employee.

Leave without pay and annual holidays

During their employment, one of your employees may wish to take unpaid leave for a number of reasons, including a holiday or a break if they are not yet entitled to leave.  In most cases, leave without pay is not an entitlement that an employee gets, but the employer should consider any requests in good faith.

If an employee takes more than a week of leave without pay, the annual leave entitlement is calculated as though the leave was on top of the year worked. For example, if an employee takes one week of leave without pay, the point at which they are able to get paid annual holidays is pushed back by one week.

Alternatively, you may want to keep the employee’s anniversary date the same, so instead you can agree with the employee that you will adjust the calculation for payment to accommodate this and keep the anniversary date the same.

When are employees paid for their holidays?

Employees are entitled to receive payment of their annual leave before the holiday is taken, unless an agreement is in place where the normal pay cycle continues. If this type of agreement is in place, documenting it in either the employment agreement or in writing on a case by case basis is your best option.

Using annual leave over closedown periods

With at least 14 days’ notice, you can require employees to take annual leave over any customary closedown period. A good example of this is notifying your employees in early December, or even late November, of the need for them to take annual leave over the Christmas period.  If you are planning to have a closedown period, keep in mind that there are rules about payment for both employees with an entitlement to leave and those who don’t have any entitlement yet.

Can employees be made to take holidays?

There are two instances in which an employee can be forced to take annual leave. If you and your employee cannot agree on when the annual leave is to be taken, and you have given the employee 14 days’ notice, you can force the employee to take holidays. You can also make employees take leave if you regularly closedown for a particular period every year, remembering to give 14 days’ notice in this case as well.

Can an employee be stopped from taking annual leave?

An employer may decline a request for annual leave if they have a genuine business reason for doing so. However, the rules specify that an employer must not unreasonably withhold consent, so they must have considered the request and provide a valid business reason.

For example, another employee has already requested leave for this period of time, or it is an exceptionally busy period for the business and annual leave cannot be granted during this period.  Employers should keep in mind that an employee must be allowed to take their entitled leave within 12 months of their entitlement arising should the employee wish to do so.  In addition, if the employee elects to take two weeks’ of entitled leave continuously this must also be allowed.

What happens to annual leave when an employee resigns?

Any untaken annual leave must be paid in the employee’s final pay and no deductions are allowed to be made from this unless there is a valid consent to the deduction from the employee.  How payment is calculated depends on if the employee has an entitlement or just accrued leave.

Annual leave entitlements in employment agreements

The annual leave entitlements outlined above are a minimum and are legislated under the Holidays Act 2003. While an employee cannot receive less than this, employment agreements can increase annual leave entitlements for employees and can also be important in clarifying calculations where the employee’s work pattern varies.

Annual leave entitlement is covered in key legislation with specific criteria around how it is implemented, accrued, and used by employees. For advice day and night contact Employsure on 0800 568 012.

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