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Annual holidays and holiday pay are consistent problems for many businesses in New Zealand. This is because understanding your business’ obligations and the law around annual holiday pay can sometimes be tricky. There are a range of common mistakes your business should avoid when managing annual leave issues. This article covers three mistakes to be aware of, including:

  • pressuring employees unreasonably to cash out their annual leave;
  • disallowing employees to take annual leave without a good reason; and 
  • not keeping detailed holiday and leave records. 

Pressuring Employees to Cash Out Their Annual Leave

There is a common misunderstanding regarding cashing out annual leave. In short, while employees can request to cash out their annual leave in cash, there are limits on the extent to which they can do this. Likewise, employers cannot pressure employees into doing this. 

Suppose an employee has completed a year of work with your business. In this case, they can request to cash out a week of their annual leave per year from their first anniversary at your business. This is the date after they have completed twelve months of service. They can also request to cash out less than a week of annual leave if they so choose. As the employer, your business can say no to these requests. Note, you do not necessarily have to give a reason for this refusal, though it is best practice to do so.

However, while employees can request a cash out for part of their annual leave, employers cannot pressure them to make this request. Therefore, you should not raise it with the employee when negotiating over a pay rise or similar situation. You also should not request that employees cash out their annual leave in exchange for something else. 

Disallowing Employees to Take Annual Leave

By default, your business should be allowing employees to take annual leave when they choose to do so. Annual leave is an essential entitlement in New Zealand, protected under employment legislation. Everyone has a range of interests and responsibilities outside work, including to their family and community. 

It may be the case that your business cannot afford to allow employees to take annual leave at a particular time. For example, there may be a some short-term need for all hands on deck. In that case, you must be careful with managing the situation. Particularly if employees have their annual leave booked, it is unreasonable and against your obligation of good faith to require employees to stay at work and take their annual leave at a later date. 

If you really do require employees not to take annual leave at a particular time, you should discuss with an employment lawyer. A lawyer will assist you to best structure your employment agreements according to the needs of your business.

Not Keeping Detailed Records

Employers must keep track of the holidays that employees take and the annual leave that they are entitled to. This is a requirement for all employers. There are serious legal consequences, including fines and other penalties, if you cannot show that you have correctly ensured that all of your employees have had the holidays they are entitled to. 

You must keep records for at least seven years, ideally in electronic form that is easy to navigate and access. There are other reasons beyond the legal requirement why it is a good idea to keep detailed records of holidays and leave. For example, suppose there is a dispute with an employee later on about their holidays or the leave that they are entitled to. In that case, it is crucial to have a robust record system to be able to check and ascertain what the employee’s entitlement is. Dedicated software can help with this, although there will still be the need to keep the records up-to-date regularly. 

Key Takeaways

Managing annual leave and other entitlements is a consistent issue for New Zealand businesses. You can save your business stress and legal issues in the future by avoiding some common mistakes. As an employer, do not pressure your employees to cash out their annual leave. Likewise, take proactive steps to ensure your employees can take their annual leave when they want to. Finally, your business must keep track of the holidays and other entitlements for employees, not least because detailed record-keeping is required under the law in New Zealand.

For more information about managing annual holiday pay, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Can employees cash out their annual leave?

Yes, after an employee has worked in a role for at least a year, they can request that up to a week of annual leave is paid out as cash. However, employers can reject these requests.

Can employers force employees to cash out their annual leave?

No. Employers have to be very careful when pressuring or asking employees to cash out their annual leave. However, if you are concerned about an employee’s annual leave balance, discuss this with an employment lawyer.

Do employers need to keep records of holidays and leave entitlements?

Yes, employers are required under law to keep seven years’ worth of records for employees, including holidays and leave. This obligation continues even after an employee has left the business.

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