Annual holidays can be taken at any time agreed between the employer and the employee. Employees must be given the opportunity to take at least two of the four weeks’ annual holidays continuously.
People have important and legitimate personal, family and community responsibilities. If an employee wants to take entitled annual holidays, employers can’t unreasonably refuse.
An employer can say no if an employee wants to take annual holidays in advance.
Employers can make employees take entitled annual holidays if:
- they can’t reach agreement with their employee about when annual holidays will be taken, and they give the employee at least 14 days' notice, or
- they regularly close down for a certain period every year and give the employee at least 14 days’ notice.
If an employer closes the workplace unexpectedly (e.g. if there was a sudden closure of the workplace following a natural disaster) and an employee refuses to take annual holidays with less than 14 days' notice and is prepared to come into work, they can’t be made to take annual holidays.
Timing of payment for annual holidays
Employees are entitled to receive their pay for annual holidays before the holiday starts, unless the employer and employee agree that they will be paid for annual holidays in the normal pay period that relates to the period that the annual holidays are being taken. If the employer and employee agree that the employee will be paid for annual holidays in their normal pay cycle, this should be recorded in writing, usually in the employment agreement.
Taking holidays in advance
If their employer agrees, an employee may take annual holidays in advance (ie before they become entitled to the holidays after their annual holiday anniversary).
If an employee takes annual holidays in advance, they get paid the greater of their ordinary weekly pay (at the beginning of the annual holiday), and their average weekly earnings (for the 12 months just before the end of the last pay period before the annual holiday, or since their start date with the employer, if the employee has worked for the employer for less than 12 months).
Employers should consider the benefit to the employee of taking four weeks annual holidays each year for rest and recreation before agreeing to the employee taking annual holidays in advance because taking annual holidays in advance will mean that the employee has less annual holidays available to take for the following year.
Jiao has worked for her employer TJ’s Tyres for 24 weeks. Her employer agrees she can take one week annual holidays in advance so she can attend a family wedding. When she takes the holiday, Jiao will be paid the greater of average weekly earnings (her total gross pay for the whole time she has been working at TJ’s divided by 24 (the number of whole or part weeks she has worked) and ordinary weekly pay (the pay that Jiao would usually receive for a normal working week).
When an employer agrees to let the employee take annual holidays in advance, they should make sure that the employee agrees in writing that the employer can deduct the amount of any overpayment of holiday pay from any final pay so that the employer can recover the money if the employee leaves before they become entitled to the leave.
The annual holidays provided for in the Holidays Act 2003 are a minimum, an agreement that references to less than four weeks has no effect but an employment agreement may increase entitlements to annual holidays e.g. by providing five weeks annual holidays each year.
When employment ends
Annual holidays don’t expire if you don’t take them; the employee remains entitled to them until they take the holiday, they are cashed-up (in limited circumstances) or their employment ends.
When an employee leaves their job, they are paid 8% of their gross earnings (which includes payment for any entitled annual holidays) since they last became entitled to annual holidays, less any amount paid to them for annual holidays taken in advance or paid on a pay-as-you-go basis.
In addition, when an employee leaves their job any entitled annual holidays they haven’t taken are paid at the rate of the greater of ordinary weekly pay as at the date of the end of the employee’s employment or average weekly earnings during the 12 months immediately before the end of the last pay period before the end of the employee’s employment.
Read more about calculating leave and holidays in final pay.
At the end of employment, there is a special rule that means employees are sometimes entitled to be paid for public holidays that fall after their employment has ended (ie after their termination date). This can sometimes happen if the employee has entitled annual holidays at the time their employment ends.
See payments for leave and holidays in final pay for more information.
Impact of other types of holidays and leave
Some types of holidays and leave may have an impact on or be impacted by annual holidays.
If an employee takes more than a week of unpaid leave at any point during the year:
- the time required before the employee becomes entitled to annual holidays is extended by the amount of unpaid leave taken in excess of one week. For example, if an employee takes two weeks’ unpaid leave, they become entitled to annual holidays one week after the anniversary of their starting date of employment, or
- the employer can agree with the employee that taking the unpaid leave will have no effect on the employee’s annual holiday anniversary date. This means that the employee becomes entitled to annual holidays at the same time as before they took the period of leave without pay. In this situation, the employee’s average weekly earnings calculation must be changed to reflect the number of whole or part weeks greater than one week that the employee was on unpaid leave. For example, if an employee takes two weeks unpaid leave during the year, it can be agreed that the anniversary date doesn’t change and the average weeks earnings for annual holiday pay is calculated on the basis of a 51-week year, not on the basis of 52 weeks.
Time off without pay while an employee is receiving ACC, on parental leave, or leave for protected voluntary military service, doesn’t affect the anniversary date for annual holiday purposes.
Leave without pay has more information.
If an employee is about to take annual holidays and before they go on leave, they (or their spouse, partner or dependant) become sick or they suffer a bereavement, their employer must let them take sick leave or bereavement leave for the relevant period (if they are entitled to that leave).
If an employee is already taking annual holidays and:
- they (or their spouse, partner or dependant) become sick, the employee can take sick leave instead of annual holidays for the relevant period, but only if the employer agrees
- they suffer bereavement; the employer must let them take bereavement leave instead of annual holidays for the relevant period.
If an employee is taking annual holidays and a public holiday falls on a day when they’re on holiday, it’s treated as a public holiday not a part of the employee’s annual holidays.
An employee's time on parental leave is included as continuous service and taking parental leave does not affect entitlement to annual holidays. Employees who take parental leave will still become entitled to a minimum of four weeks of annual holidays on the anniversary of their employment start date.
However payment for annual holidays that an employee becomes entitled to:
- during parental leave, or
- during a period of preference after parental leave, or
- in the 12 months after the employee returns to work after parental leave,
is calculated using the employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holidays are taken (or paid out). An employer may choose to pay the employee more than this.
Calculating payments for leave and holidays has information on the impact of parental leave on payment for annual holidays.
Accrued annual holidays
The concept of accrued holidays is a useful tool for employers to use as an estimate of their financial liability for annual holidays. They can also be useful for employees to see as an estimate of their progress towards becoming entitled to their four weeks annual holidays (at their anniversary date). It is not a concept found in the Holidays Act 2003.
It can be confusing for employees to see an accrued annual holidays balance because:
- employees are not entitled to take accrued holidays and
- the employee’s annual holidays entitlement after their next anniversary date for annual holidays may be different from their accrued holidays balance just before their anniversary date. This is particularly the case if the employee’s work pattern has changed throughout the year and the accrued holidays have not been recorded in weeks or the accrued balance hasn’t been updated to reflect the work pattern change.
If an employee askes to take annual holidays in advance, some employers use the employee’s accrued annual holiday balance as the basis for deciding:
- whether to agree to the employee taking any annual holidays in advance
- how many weeks’/ days annual holidays in advance the employee can take.
Employers and employees having problems with annual holiday entitlement can contact us for help.