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Annual closedowns

If a business has an annual closedown, employees may have to take their annual holidays entitlement.

Leave and holiday entitlements during COVID-19

If an employer regularly closes down for a holiday period or seasonal break and requires employees to take annual holidays (or take unpaid time off) this is referred to as an ‘annual closedown' and it can occur:

  • across an entire workplace, or
  • for part of an organisation (eg where a factory closes for maintenance while the office, dispatch and sales departments stay open).

This often happens at Christmas time, but some seasonal industries have closedowns at the end of a particular season. An employer can close down different parts of the workplace at different times.

The employer may have a customary closedown once a year and require employees to take annual holidays during the period of the closedown, as long as they give employees 14 days’ notice.

If an employee is entitled to annual holidays (even if they currently have a zero annual holidays balance), they must stop work (as long as they get 14 days’ notice) and take as much of their  annual holidays balance as is needed to cover the closedown period. Payment for these annual holidays is calculated in the usual way that payment for annual holidays is calculated.

If the employee doesn’t have a high enough annual holidays entitlement balance to cover the whole closedown period, then:

  • in addition to taking all of the annual holidays entitlement they currently do have, they can also take some annual holidays in advance (if the employer agrees), and/or
  • they may have to take some leave without pay (or another form of leave as agreed with their employer).

Some employees may not be entitled to annual holidays at the start of the closedown because:

  • they haven’t worked continuously for their employer for 12 months yet, or

  • they have worked for  their employer for 12 months but haven’t reached entitlement for annual holidays because they have taken  unpaid leave of more than one week and this has moved out their anniversary date for annual holidays entitlement, or

  • they have had a period of receiving pay for annual holidays on a pay-as-you-go basis.

There are special provisions for these employees as follows:

  • they must get paid 8% of their gross earnings as at the closedown date from:
    • the start of their employment if they haven’t worked continuously for 12 months for their employer, or
    • their last anniversary date for annual holidays if they have already worked for their employer for at least 12 months, less any amount already paid as 8% pay as you go or already taken as annual holidays in advance,
  • in addition:
    • the employee may agree with their employer that they take some annual holidays in advance
    • the employee’s anniversary date for annual holiday entitlement purposes is moved to the date the closedown starts (or in some situations, an alternative date close by as nominated by the employer).

An employer can nominate a date to be treated as the start of the closedown period

For employees whose work is subject to a regular annual closedown, and who have not become entitled to annual holidays at the time of the closedown, the employer can nominate a date that will be treated as the date that the closedown starts. This date will be the date the employee becomes entitled to annual holidays each year regardless of their actual start date of employment or the actual date of the start of the closedown. This date must be reasonably connected to the timing of the regular annual closedown.

For example, when there is a Christmas closedown, the date could be set at 15 December to make sure that it always comes before the annual closedown starts. This will mean that unless the employer agrees that an employee can take annual holidays in advance, the employee will always get their full entitlement to annual holidays just before the start of the closedown. This is the only situation where an employer can choose a particular date for employees to be entitled to annual holidays

Employee in their first 12 months working for their employer taking annual holidays in advance

Kenny started working for his employer Tania on 15 September. Two months later, at the beginning of November, Tania gave notice to all her employees that the workplace was going to have its regular annual close down from 24 December until 5 January.

Tania must pay Kenny 8% of his gross earnings in relation to the closedown period (from 15 September until 23 December). This amount is similar to one week’s pay for Kenny. Kenny is worried about how he will cope financially for the rest of the closedown as he was out of work for a while before he got the job working for Tania. Kenny asks Tania if he can have one week’s annual holidays in advance to tide him over. Tania says this is ok but reminds Kenny that this will mean next year he will only have three weeks annual holidays. Tania also reminds Kenny that she must move his anniversary date for the calculation of annual holidays.

This means Kenny won’t have any annual holidays entitlement available until the following December and if he takes a week annual holidays in advance now he will only have 3 weeks left. Kenny is fine with this and Kenny and Tania agree to the week’s annual holidays in advance in writing. Kenny’s anniversary date for annual holidays would normally be moved to 24 December (the start of the actual closedown period) except Tania has chosen to move the date to the nearby date of 17 December so that every year her employees will be entitled to annual holidays at the start of the closedown period. This means Kenny will be entitled to four weeks’ annual holidays (less the week taken in advance) from 17 December next year.

Employer won’t agree to a request to take two weeks’ annual holidays in advance

Mayce has been working for Erin for two years. The workplace has an annual closedown of four weeks, for most of January each year. Mayce gets four weeks’ annual holidays each year but she has already taken two of these weeks in advance on an overseas trip so she will only have two weeks’ of annual holidays entitlement at the time of the closedown. Like all the other employees in the workplace, her anniversary date for annual holidays has been set at 22 December. Mayce asks Erin if she can take two weeks’ annual holidays in advance at the time of the closedown this year so that she will have enough annual holidays to cover the entire closedown.

Erin considers Mayce’s request, and tells her she can only take one week of annual holidays in advance, because if she took two weeks in advance this year, then next year Mayce would only have two weeks annual holidays to cover the next closedown. By only agreeing to one week ‘s annual holidays in advance this year, Mayce gets three weeks’ total annual holidays (two weeks entitlement and one week taken in advance) this year and will only have to take one week’s unpaid leave to cover the closedown.  Mayce will still have three weeks’ annual holidays left for next year’s closedown.

Relationship with other types of leave and holidays

If a public holiday falls, or an employee wants to take sick leave, bereavement leave day or an alternative holiday, during a closedown period, the employer needs to decide whether the day is an otherwise working day for the employee (ie if the closedown was not in force). If it is an otherwise working day, then the employee will be entitled to the day as a public holiday, sick leave day, bereavement leave day or alternative holiday as appropriate.

The employer can have further or other closedowns (ie not regular annual closedowns under the Holidays Act 2003) but they will need to agree with their employees on how those closedowns will be treated and what leave or holidays arrangements will apply.

Instead of having an annual closedown and requiring employees to take annual holidays, there are other options, eg an employer may choose to continue to pay employees but not require them to attend work.

The employer can’t make employees take annual holidays for a closedown except when it is an annual closedown under the Holidays Act 2003 (although they could require them to take annual holidays if they have been unable to reach agreement on when the employee can take annual holidays and they give them 14 days’ notice).

An employee’s date of entitlement to annual holidays can’t be affected by a second or subsequent closedown.

Image of the flowchart: Closedowns [PDF 231KB]

Closedowns flowchart

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