 Annual Leave
The Holidays Act provide employees with a minimium of 4 weeks annual holidays every 12 months' of continuous service. The purpose of this minimium entitlement is to provide employees with the opportunity for rest and recreation. This entitlement remains in force until the employee has taken all of the entitlement as paid holidays.
Taking Annual holidays
The employer and employee should agree on how the entitlement is to be met based on what genuinely constitutes a working week.
When the leave is to be taken is to be agreed between the employer and employee. An employer must not unreasonably withhold consent to an employee's request for annual leave.
If the employee elects to, the employer must allow an employee to take 2 weeks in one continuous period. An employer may require an employee to take annual holidays by giving not less than 14 days notice of the requirement to take annual leave.
Change in Work pattern
If an employee's work pattern changes an agreement about the transition and conversion of the entitlement will be required. Factors to be considered include what constitutes the employee's working week - whether provided for in weeks, days or hours. Where the two parties cannot or do not agree on how an employee's annual holiday entitlement is to be met, a Labour Inspector is able to determine the matter.
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Continuous Service
The employee is entitled to 4 weeks annual holidays after every 12 months continuous service. Service is considered to be 'continuous' under the following situations:
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On paid holidays/leave under the Act
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On parental leave
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On protected voluntary service or training
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Receiving weekly ACC compensation
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On unpaid sick or unpaid bereavement leaves
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On unpaid leave for any other reason of no more than 1week
An employer may chose to consider that a period of more than 1 week's absence does not come into the definition of "continuous' employment. The employer can chose to shift the employee's entitlement date for annual leave by the number of days less one week. For example, if an employee takes 12 weeks unpaid leave for an overseas holiday, their entitlement date can be shifted by 11 weeks (12-1week = 11 weeks).
An employer may also choose to include any unpaid leave of more than 1 week as 'continuous' employment. In this case, the employer should reduce the 52 week denominator for the purpose of calculating weekly annual holidays by the number of whole or part weeks greater than 1 that the employee was on unpaid leave. For example, if the employee is away for the 12 weeks, the divisor is reduced to 41 weeks (52-11 weeks=41 weeks).
If an employee is dismissed and then re-employed within 1 month, the employment is treated as being 'continuous' unless the Labour Inspector is satisfied that the employer acted in good faith and not for the purpose of evading the obligations under the Act.
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Paying Annual Holidays
The Holidays Act provides that the employee is to be paid while on vacation. Unless agreed upon, the Act provides that the employee is to be paid before commencing his/her annual holidays. Depending on the type of leave taken, the Act provides different formulae to calculate annual holidays. Before discussing how the leave is to be calculated, a few definitions are necessary.
Gross earnings
This is all the earnings that an employer is required to pay the employee under the employee's employment agreement and include:
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salary or wages
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allowances
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payment of annual holidays, public holiday, alternative holidays, sick and bereavement leave
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productivity and incentive payments
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cash value of board and lodging
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first week ACC compensation
It excludes payments that are not contractual under the employee's employment agreement such as discretionary payment, weekly ACC compensation, and payment for absence while the employee is on protected voluntary service.
Average Weekly earnings
It means 1/52 of an employee's gross earnings as defined above.
Ordinary Weekly earnings
This is amount of pay that an employee receives under his/her employment agreement and includes:
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regular productivity or incentive payments
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regular payments of overtime
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cash value of board or lodging.
It excludes productivity, incentive payments and overtime payments that are not a regular part of an employee's pay and any discretionary payment (described as b)
If it is not possible to determine the employee's ordinary weekly pay, then the pay must be calculated using the following formula:
a-b
c
'a' is the employee's gross earnings for the 4 calender weeks before the end of the pay pay immediately before the calculations is made. If the pay period is longer than 4 weeks, than the pay period before the calculation is made.
'b' is the amount of payment described as b above.
'c' is 4.
Entitlements to leave are calculated at the greater of the employee's average weekly earnings or the employee's ordinary weekly earnings.
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Leave in advance
An employer can allow an employee to take annual leave in advance. This is leave that is granted before entitlement. It is paid at the greater of the average weekly earnings versus the ordinary weekly earnings (similar to leave that is entitled). The average weekly earnings is the previous 12 months gross earnings from the last pay period of employment divided by 52. If the employment is less than 12 months, then divided by the number of weeks actually worked.
Cashing out leave
The Holidays Act does not provide for minimum annual leave to be cashed up. However, it does not prevent the cashing out of annual holidays that is above the minimum entitlement.
Pay as you go
An employer can pay an employee's holiday entitlement with that employee's pay only if:
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the employee is under a fixed term agreement that has a duration of 12 months or less; or
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the employee works for the employer on a basis that is so intermittent or irregular that it is impracticable for the employer to provide the employee with 4 weeks' annual holidays.
If either of the two above situations exist then the employer will need to observe all of the following requirements:
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the employee agrees to be paid their holiday pay as a component of their normal pay; and
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the holiday pay component is identified as a separate component; and
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the annual holiday pay is paid at a rate not less than 8% of the employee's gross earnings.
Please be aware that if you have been paying an employee their holiday pay as they go in circumstances not allowed for in terms of the Act then you could be liable to repay the amount already paid out. Please contact EMA Advice for assistance in dealing with such a situation.
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Annual & Public holidays
A public holiday that occurs while the employee is on annual holidays must be treated as a public holiday. If an employee has annual holiday entitlements at the time of termination, the employee would be entitled to be paid for public holidays that fall within this period. For example. if an employee has 10 days of leave entitlement and a public holiday falls within the 10 days after termination then the employer would be obliged to pay the employee for the public holiday. However, this is not the case, if the employee has only accrued holiday (from an incomplete year). Hence if an employee only has 5 days of accrued leave but a public holiday falls within it, the employee is not entitled to be paid for that public holiday. The employee is only paid 8% for such leave which is a monetary payment rather than paid annual leave entitlement.
Annual holidays & Sick and Bereavement leave
If an employee became sick or was bereaved before going on annual holidays, the employer must allow them to use sick or bereavement leave.
If the employee fell sick during their annual holidays, the employer may allow the employee to take sick leave.
However, if the employee is bereaved, the employer must allow the employee to take bereavement leave.
Sick and bereavement leave exhausted
The employer may allow the employee to use annual holiday if the sick and bereavement leave are exhausted.
However, the employer must not require an employee to take annual holidays if the employee has exhausted his/her sick and bereavement leave. The request to use annual holidays must be from the employee.
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Annual holidays & termination
When an employee has worked less than 12 months' continuous service, the employee is entitled to be paid 8% of their gross earnings for annual holidays.
When an employee has worked for more than 12 months continuous service, the employee is to be paid the greater of the average weekly earnings versus the ordinary weekly earnings for the leave they have become entitled to. If the employee also has accrued leave, this is to be paid out at 8% of gross earnings. It is necessary to include payment for leave entitlement as part of overall gross earnings when calculating the 8% of gross earnings.
Closedowns
A closedown period is defined as a period during which the employer customarily closes the employer's operations or discontinues the work of 1 or more employees and requires his or her employees to take all or some of their annual holidays.
The Holidays Act 2003 allows employers to require their employees to take their annual holidays during a closedown period whether or not the employee has leave entitlement. Employers are only allowed one close down period in a year. The employer must give the employee not less than 14 days notice of the requirement to take annual holidays. Employers can have different closedown periods for each part of the business.
Although the 2003 Act stipulates that an employer can only have 1 closedown period in a 12 month period where the employer can insist that employees take their annual holidays, this does not prevent an employer and their employees from agreeing to discontinue operations and make arrangements that will apply in those times.
If an employee has sufficient annual holidays to cover the closedown period, the employer is to pay the employee the greater of the average weekly earnings versus the ordinary weekly earnings (formula for leave entitlement).
If the employee does not have enough annual holiday entitlements to cover the whole period, the employer may agree to allow the employee to take some of the leave the employee would become entitled to at their next anniversary date as leave in advance and be paid at the same formula as leave entitlement (see above).
The calculation of leave during a closedown for employees who are not entitled to annual holidays is 8% of gross earnings. Alternatively, an employer can treat the leave as leave in advance and calculate at the greater of the average weekly earnings versus the ordinary weekly earnings.
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Anniversary date and closedown
If the employee is required to discontinue service during a closedown period, the employee's anniversary date may be shifted to the date the closedown begins. The employer may also nominate a date as the anniversary date as long as it is close to the actual date of commencement of the closedown period.
Please refer to our a- z guide for a more detailed discussion of annual holidays by clicking here.
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