Big Leave Balances and Cashing up Holidays

Below are some useful employment law facts related to the Holidays Act that you may not be aware of. The facts concern leave balances and cashing up leave.

Cashing up holidays or annual leave:

• The Holidays Act allows for the exchange of 1 week of an employee’s 4 week entitlement for payment in each year.
• Payment is calculated on basis of the greater of:
• the employee’s ordinary pay;
• an average of the last 12 months.
• Whether the employer allows this is at the employer’s discretion. The employer may make a policy that specifically provides that it will not allow this to occur.
• Cashing up anything beyond 1 week is not legally permissible.
• The employer is not permitted to set out that it will always pay out 1 of the 4 weeks in:
• a term of an employment agreement; or
• a blanket policy.
• Decisions to cash up leave must be an exercise of discretion on application by an employee. This means that if you don’t ask, you most likely wont get!

Big leave balances:

• Annual leave balances can’t be extinguished or reduced by an employer just because the leave has not been taken within a particular timeframe. Often employment agreements state that accrued leave must be taken within 12 months. Such a provision can only be enforced by the employer utilising a power under the Act to have the employee take annual leave on 14 days’ notice. Leave that is not taken within 12 months remains available.
• The power in law to compel an employee to take leave on 14 days’ notice is subject to, in the first instance, attempting to come to an agreement as to how the leave will be taken, and an overriding duty of good faith.
• Holidays are paid at the current rate of wage or salary. Holidays are calculated on basis of the greater of:
• the employee’s ordinary pay;
• an average of the last 12 months.
• The calculation is not affected by when the holiday accrued. A holiday earned 2 years ago will most likely be required in law to be paid at employee’s current ordinary pay.

Reducing big leave balances

Given the above, the only sound strategy for reducing big leave balances is a combination of reaching agreement that 1 week will be paid out to an employee, and agreement with an employee concerning taking leave. Failing agreement, leave can be compelled. As with many issues in employment law, a finessed agreement is preferable.