Everyone needs time away from work to recharge their batteries and in times of sickness, bereavement, or specific family situations. Having time off means an employee can be more committed and focussed during their working days.
- Discuss with each employee what four weeks annual leave means for them. Learn more here
- Communicate your expectations around timing and the amount of notice expected for annual leave. Learn more here
- Ensure staff receive their correct entitlements to public holidays, sick leave and other leave. Learn more here
- Keep up to date with current legislation on minimum leave entitlements and ensure your employee is receiving these.
- Communicate regularly with your employee about when they will take leave so you can ensure you have cover and your employee can look forward to their time off.
- Manage leave; it’s an on-going task. Ideally every payslip will have a summary of the employees’ annual leave.
- Save the date; most leave entitlements are passed on to your employee on the anniversary of the employment start date, or have a correlation to it, so it is a good idea to have this date in your diary.
Quick Questions & Answers
How can I quickly and easily calculate annual leave entitlement?
Our easy to use annual leave calculator will help you to work out your employees leave entitlement in hours or days.
What is my employee's entitlement to annual leave?
Look at the employee’s file. When did they start?
Technically, an employee is not entitled to take annual leave during their first year of employment. However, many employers allow their employee to take annual leave in advance.
Learn more about taking annual leave in advance.
At an employee’s first anniversary (and every anniversary after that), they receive four weeks annual leave. This is four of their weeks – the exact number of days/hours will depend on their particular working pattern. It's not always easy calculating annual leave entitlement on the farm.
Determine what four weeks annual leave means if the employee is working irregular hours or rosters.
There are two instances where the date the employee receives their annual leave can be different from their anniversary date:
- the business has a formal closedown period, and
- the employee has taken unpaid leave of more than one week.
Annual leave can be taken at any time agreed between the employee and employer. The employee has the right to take at least two weeks annual leave continuously if they wish. Under certain circumstances, an employer can direct an employee to take annual leave.
It's best to sit down with your employee and agree when annual leave will be taken. Get some tips on what to do if your employee wants to take annual leave at a busy time of year or refuses to take annual leave by clicking here.
An employee should be paid either their average weekly earnings (the average for the last year) or their ordinary weekly pay (their normal weekly amount) for annual leave taken, whichever amount is higher.
Find out how to calculate payment for annual leave.
Record annual leave taken in the employee’s holiday and leave record. A holiday and leave record is a legal requirement.
Check that you are keeping all necessary records.
If an employee leaves during their first year, they should be paid 8% of gross wages as holiday pay minus any leave taken in advance. If they leave after their first anniversary, they should be paid their remaining annual leave entitlement from previous years plus 8% of gross wages from the date of last entitlement until date of termination. For budgeting reasons, you should be putting aside this money as you go so it’s available if someone resigns unexpectedly.
Work out how to calculate an employee's final pay including some practical examples.
Genuinely casual employees can be paid their 8% holiday pay in the normal pay cycle, rather than accruing annual leave. The agreement to pay holiday pay “as-you-go” needs to be recorded in the employment agreement and the 8% needs to be a separate and identifiable line in the payslip.
Find out more about paying holiday pay as you go.
Review your employment agreement to check there’s an annual leave clause in your template – clear terms and conditions are your best chance of avoiding misunderstandings later on.
Learn more about what needs to be in an employment agreement and where to get help drafting one.
If you are still doing pays manually, consider moving to a payroll system. Payroll systems can make life much easier and a good system should correctly calculate an employee’s annual leave entitlements. There are several off-the-shelf payroll packages available or you could outsource your payroll to an accountant or payroll service. If you are a small business with less than 5 employees, the IRD offers a subsidy if you outsource your payroll. Currently this is $2 per payday per employee and the amount is paid directly to the payroll provider.
Visit the IRD website for more information about the payroll subsidy scheme.
Check that you are keeping all necessary records and that the information in them is up-to-date and accurate. You are legally required to keep a number of records on file such as a holiday and leave record and a wages and time record. Good records are also in your best interests – they provide evidence that your employee has received their correct entitlements and also contain valuable information for budgeting and planning purposes.
Keeping accurate records makes good business sense.
Can I force my employee to take annual leave?
Generally the timing of annual leave should be by mutual agreement, but in certain circumstances you can force an employee to take annual leave. If you’d like your employee to take their annual leave within a certain timeframe, it’s best to sit down early in the year and discuss the matter. It’s often helpful to put together a leave plan scheduling annual holidays at a time that suits both parties.
It's best to sit down with your employee and agree when annual leave should be taken.
If your employee is reluctant to take their leave, find out why. For example, are they worried about who is going to take over their responsibilities at work, or are they trying to save up their annual leave to cover a long holiday? Work together to overcome any barriers. With open communication, good faith and flexibility on both sides, most problems can be worked out.
If you still cannot agree on the timing of annual leave, you can direct the employee to take their annual holidays with 14 days notice. A longer notice period is highly recommended as it gives the employee time to make appropriate arrangements. An employer cannot direct an employee to take their accrued annual leave, only this year’s annual leave entitlement.
The rules are different during a closedown period. An employer can direct an employee to take annual leave during a closedown period, even if they are not entitled to annual holidays yet and/or they do not have sufficient holidays. The employer must give a minimum of 14 days’ notice before a closedown, however a longer notice period is strongly recommended.
Learn more about regular closedown periods.
What are the rules around cashing up annual leave?
An employee can request to be paid out in cash for up to one week of their annual leave entitlement each year. This request must be in writing. Your employee cannot cash up any annual leave entitlement that arose before 1 April 2011.
The request to cash up annual holidays must be made voluntarily by the employee, it cannot be compelled, or included in an employment agreement. You should consider the employee’s request in good faith and respond in writing within a reasonable amount of time.
If you agree to the employee’s request, payment should be at the greater of the employee’s “ordinary weekly pay” or “average weekly earnings”, the same as if they had actually taken the holidays.
If you pay out annual leave when your employee hasn’t requested it, then your employee is entitled to take the annual leave and also keep the money. You may also face a penalty.
Learn more about cashing up annual holidays.
Under what circumstances can employees lose their leave entitlement?
Your employee can never lose their annual leave entitlement, they cannot forfeit it, nor does it expire. An employee’s annual leave entitlement remains in force until they either take it (as paid time off) or the leave is paid out (through cashing up annual holidays or at termination).
Work out how to calculate an employee's entitlements on resignation or termination.
If an employee is reluctant to take annual leave, it’s best to sit down with them early in the year and discuss the situation. Work together to find a solution that works for both parties. If you still cannot agree, you can direct your employee to take their annual holidays with 14 days notice. A longer notice period is highly recommended as it gives the employee time to make appropriate arrangements. An employer cannot direct an employee to take their accrued annual leave, only the current year’s annual leave entitlement.
Sit down with your employee and agree when annual leave should be taken. Work together to find a solution.
How much notice should my employee give for taking annual leave?
Annual holidays can be taken at any time by mutual agreement. While the amount of notice required is not specifically mentioned in the Holidays Act, it needs to be fair and reasonable. This varies depending on the workplace. Some businesses may be happy with a few days’ notice - others may require a few weeks’ notice.
As an employer, you cannot unreasonably withhold consent to an employee's request to take annual holidays. By the same token, it’s reasonable to expect employees to provide the notice needed to plan for their absence. It’s good practice to develop a policy around the amount of notice expected on the farm. This should be kept in the Farm Policy Manual or even in your employment agreement and helps avoid misunderstandings later on.
It may be helpful to sit down with your employees at the start of the year to discuss their annual leave plans for the year, especially longer holidays. Employees must be given the opportunity to take at least two of their four weeks’ holiday continuously.
Sit down with your employee and agree when annual leave should be taken. Work together to find a solution.
There may be occasions when an employee needs to take annual leave unexpectedly, for instance in a family emergency. These situations should be dealt with on a case-by-case basis. Open communication, good faith or treating your employee as you would like to be treated, and common sense are key here. If you feel that an employee is taking advantage of the situation, it’s best to deal with the issue promptly.
Use your communication skills and be open minded, to deal effectively with problems.
My employee is off work with a non-work related injury, do I need to pay them?
If an employee is injured and unable to work, ACC will generally pay compensation for lost earnings after the first week off work. This applies to all injuries – work, home and sport.
If your employee is injured in a non work-related accident, they should take sick leave for the first week off work. If they don’t have enough sick leave, you can both agree that the employee uses their annual leave instead. If this is also exhausted, the employee should take unpaid sick leave.
After the first week, and provided ACC accepts their claim, ACC will compensate the employee for 80% of their pre-injury income. This money is normally paid directly to the employee. An employee and employer can also agree that the employee can use one sick leave day a week to top their income up to 100%.
If an employee has a work-related accident, the employer has to pay 'first week compensation' and cannot require the employee to take that time off as sick leave.