Cashing Annual Leave

Posted on: Mar 15, 2015

The Holidays Act 2003 provides that on one or more separate occasions an employee can request that his or her employer pay out a portion of the employee’s annual leave entitlement. There are conditions and restrictions to this cashing up provision (sections 28A-F), the main ones of which are outlined below:

  1. An employee can only make a request in relation to annual holidays to which the employee has become entitled. An employer and employer cannot agree to pay out annual holidays in advance of the employee’s entitlement arising.
  2. A maximum of one week can be paid out, but employees can request that only a portion of that week is paid out. Employees must still have a minimum of three weeks away from work.
  3. Cashed up holidays must be paid at the same rate as annual leave.
  4. To ensure that employees are not pressured into giving up one week of leave, the Act provides that the employee must instigate the arrangement and the parties must genuinely agree on the matter. An employer is entitled to have a policy (after consultation with employees) that it will not consider cash up requests.
  5. Labour inspectors and the Employment Relations Authority are given powers to ensure the cash up payment is actually made. If an employer incorrectly cashes up an employee’s annual leave the paid out portion is restored to the employee’s annual holiday balance.

The entitlement to annual holidays has two dimensions: time and money. The employer must not only pay the employee for annual holidays, but must also allow the employee the time off work for rest and relaxation (these are minimum entitlements). This is why it is not possible to cash up more than one week of the annual holiday entitlement.  

In light of the importance placed on minimum entitlements under the Act, if, despite the illegality, the parties went ahead with an agreement of paying out additional annual holidays, the employer might be faced with a claim for payment of the holiday pay (again) at a later date and could also be penalised for breach of the Holidays Act.

Note that the limit on cashing up one week of annual holiday entitlement each year only applies to the statutory entitlement provided by the Holidays Act.  An employee who enjoys a greater entitlement under his or her employment agreement (say 5 weeks annual leave for example) can agree with their employer to cash up any amount of annual holidays in excess of the minimum entitlement.

The minimum entitlement under the Act is currently 4 weeks annual leave.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Subscribe to Newsletter

Christmas is coming…

Christmas is coming…

Once Labour Day has been [yes, believe it or not it’s this coming Monday], the next public holidays are at Christmas and New Year. It always feels like employers have to put a bit more thought into Christmas and New Year because: there are four public holidays; this is a time that many businesses have their annual closedown period; many employees take their annual leave; some employees don’t have enough leave to cover this period; some employment agreements have special rates for these public holidays; and, let’s face it, it is a busy busy busy time. In the next few weeks, my colleague, Tasneem Begum, and I will be offering a free webinar for those employers who want a bit more information around those tricky calculations for leave at this time of the year. We will also be able to answer the questions you have and the challenges you face with leave during the Christmas/New Year period. You are not alone with the questions you have – Questions we are often asked at this time of the year are about employing staff to cover the busy Christmas period

Read More
One of those weeks: Mental Health Awareness Week 2022

One of those weeks: Mental Health Awareness Week 2022

I have had one of those weeks where I have been in full day mediations virtually every day out of Auckland. What hit me at these mediations is the despair that people find themselves in by the time they arrive at my door. With varying degrees, all of these mediations had people in deep emotional turmoil. Anguish, frustration, anger and deep sadness, to the point where I had to pause to ensure the people were in the right space to make good decisions for themselves.

Read More
What the heck is going on with pay?

What the heck is going on with pay?

While we are conscious of the impact that inflation is having on wage and salary conversations, there are four other levers that have been, and are being, used to bring about fundamental change and significant uplift to pay in New Zealand. The Government is using these levers to drive increases in pay at various levels in ways that we may not be conscious of. However, when brought together as a single thread, they are having a big impact.

Read More
PREV NEXT