Employees in New Zealand are entitled up to four weeks of paid holidays each year, but employees may have the choice to reduce their annual leave by up to one week each calendar year and have this paid out in cash instead. Known as ‘cashing up’ holiday pay, the benefit is not a legal requirement, and employers should be aware of the restrictions surrounding the process should they choose to offer it. It is best practise for employers to include a cashing up policy in their employee handbook to clarify company rules.
How to cash up holiday pay
For employers that choose to offer cashing up, it is important to remember that an employee can ask for the full cash amount or make multiple requests until their weeks’ worth of annual leave has been cashed up.
Employees must be employed for at least 12 months to qualify, and submit the cashing up request in writing. When calculating the amount to pay, employers must follow the same steps as if the employee was taking a holiday. The amount cashed out cannot be any less than the amount an employee would receive while on a paid holiday.
Employers must consider each request and respond within a reasonable timeframe. The answer can be ‘yes’ or ‘no’ and the employer does not have to give a reason for the decision, but it must be sent back in writing.
If the answer is yes, the employer must cash out the annual leave as soon as possible, preferably within the next pay day. If the employer and employee cannot agree on how much holiday pay to cash out, a labour inspector can make the decision for them.
What if an employee has more than four weeks of annual leave?
In some agreements, an employee can have more than four weeks of annual holidays. Any arrangement relating to a contractual entitlement to annual leave should be agreed on between the employee and employer.
For example, if an employee has five weeks’ annual leave per year, being four weeks provided under the Act and a weeks’ contractual entitlement, the employee may cash up a week of their four week entitlement provided under the Act, as well as the contractual week offered, provided the employer agrees.
When employers cannot cash out annual leave
Employers are not allowed to influence when and how an employee cashes out their annual leave. This means an employer cannot:
force an employee to cash out their holidays
negotiate the cashing out of holiday pay in exchange for a better wage or salary
make cash requests part of their employment agreement (but the employer should specify how to make the request and whether this option is available in the company)
It is unlawful for an employer to cash up annual leave without written permission from the employee. If an employer pays out a portion of annual leave without their consent, the employee gets to keep the payout AND take the annual leave on top of the payment.
What to include in a cashing up holiday pay policy
Employers are not legally required to cash up annual leave and can simply have a policy stating it is not part of company policy.
If the company does allow employees to cash out holiday pay, employers may place further restrictions on the practice. For example, in the interest of an employee’s personal wellbeing, those who have accrued too much annual leave may not be allowed to exchange it for cash.
A cashing up holiday pay policy should also include:
how to make a cash out request
the approval process, including who is in charge
policy on cashing out extra annual leave beyond the minimum standard
details on when the employee will be paid after an agreement is reached
For further advice on cashing up annual leave in the workplace, contact
0800 568 012.
