Knowledge With Christmas just around the corner, many employers are turning their minds to their annual holiday closedowns.
If your organisation plans to close over the holiday season and you haven’t already communicated this, now is the time to notify your team and discuss how the period will be managed, especially if an employee may receive less than their usual wages or salary during this period.
What is a Closedown Period?
Under the Holidays Act 2003 (“the Act”) employers are able to shut their operations. Often employers do this over the Christmas and New Year period, enabling employees to have time off over the holiday season. Ensuring your process is sound and that employees are paid correctly for their leave is essential.
A closedown period is where an employer closes all or part of its operations and requires its employees to take some or all of their annual holidays.
When Can You Have a Closedown?
Employers are able to have one closedown per year and must provide at least 14 days’ notice of the closedown, as well as the requirement to take annual leave. In our experience, providing as much notice as possible helps avoid confusion and allows employees to plan their holidays accordingly.
Why have a Closedown Period?
Employers can choose to have a closedown at any point during the year, but many select December or January because other businesses are often shut, meaning there’s usually less work to be done. Employers want to ensure employees can enjoy an uninterrupted break and spend time with whānau and friends over the holiday season. From a business perspective, it also helps manage leave balances and prevents leave liability from becoming too high.
Employees Entitled to Annual Holidays
Employees who have completed more than 12 months of continuous employment at the time of the closedown must use their available annual leave entitlement for the period of the closedown.
If an employee does not have enough leave to cover the entire period, the employer may agree for the employee to take annual leave in advance or leave without pay.
Employees with less than 12 Months Service
If an employee has been working for less than 12 months at the time of the closedown, the Act provides that they must be paid 8% of their gross earnings since the commencement of their employment, less any annual holidays taken in advance through the year.
The employee’s anniversary date for the purposes of annual holidays will also move to the date the closedown period began.
An employer may also agree to allow the employee to take annual leave in advance of their next entitlement, although there is no obligation to do so.
Previously, some employers treated annual leave in advance as an alternative to the 8% payment. However, a 2020 Employment Court decision confirmed that the 8% payment is mandatory and cannot be replaced by an agreement to take annual leave in advance.
Practical Example
Jane commences employment with ABC Limited on 1 June 2025. ABC has an annual closedown period from 23 December 2025 to 5 January 2026. ABC is required to pay Jane 8% of her earnings from 1 June to 23 December 2025 at the start of the closedown period less any holidays taken in advance (for example, when Jane took a few days off to travel to Australia for a family event). Jane will next become entitled to annual holidays on 23 December 2026.
Key Takeaway
If your business is planning a closedown and you haven’t yet communicated this to staff, now is the time. Giving clear notice and confirming how leave will be handled, especially where an employee may receive less than their usual pay, helps ensure a smooth and compliant process.
If you have any questions about your obligations under the Act, the Black Door Law team is here to help.
Disclaimer: This information is intended as general legal information and does not constitute legal advice.