Cashing-up annual holidays
As of 1 April 2011, employees are able to ask their employer to pay out in cash up to one week of their minimum entitlement to annual holidays per year.
The Amendment Act introducing cashing up annual holidays provides that a request may be made only in relation to an entitlement year that begins on or after 1 April 2011. Employees cannot cash up annual holiday entitlements that arose before 1 April 2011.
An entitlement year is defined as beginning on the anniversary of the employee’s employment. An employee who becomes entitled to annual holidays on their anniversary date on or after 1 April 2011 is able to request cash up of up to one week of their annual holidays during the 12 month period of their entitlement year that runs from that point.
For example, an employee with an anniversary date of 1 June is able to request that up to one week is cashed up of their four week entitlement that they receive on 1 June 2011. Their request can be made at any point in the entitlement year that runs from 1 June 2011 to 1 June 2012.
Cashing up annual holidays can only be at the employee’s request and the request must be made in writing. Employees may request to cash up less than a week at a time. More than one request may be made until a maximum of one week of the employee’s annual holidays is paid out in each entitlement year (the period of 12 months’ continuous employment from the anniversary of the employee’s starting date).
Any request must be considered within a reasonable time and may be declined – unless the employer has a policy that does not allow cashing up. The employee must be advised of the decision in writing and the employer is not required to provide a reason for their decision.
If an employer agrees to pay out a portion of the employee's annual holidays, the payment should be made as soon as practicable, which will usually be the next pay day. The value of the payment must be at least the same as if the employee had taken the holidays.
An employer cannot pressure an employee into cashing up holidays. Cashing up cannot be raised in wage or salary negotiations or be a condition of employment. Requests to cash up cannot be included in an employment agreement. However, an employment agreement may outline the process for making such a request. The process must meet the minimum requirements set out in the legislation.
Employers may have a workplace policy that they will not consider any requests to cash up annual holidays. This can apply to the whole or only some parts of the business. The policy can only be on whether the employer will consider any requests. It cannot be about the amount of annual holidays an employee can cash up or the number of requests an employee may make. An employer should consult with employees on the development of such a policy, and advise new employees of the policy when they make an offer of employment, as part of their good faith obligations.
If an employer does not have a workplace policy on cashing up that applies to the employee, they must consider any request to cash up annual holidays in good faith.
If an employer is found to have incorrectly paid out a portion of the employee's annual holidays where the employee did not request it, the employee is still entitled to take the portion of annual holidays concerned and to keep the money. The employer may also face a penalty.
If an employer has agreed to pay out a portion of the employee's annual holidays, but the employer and employee cannot agree on the proportion or payment amount, a Labour Inspector may determine the proportion or amount for them.
There are other details that employers and employees considering cashing up holidays will need to know, for example how it affects superannuation payments, Working for Families, child support and income tax and what happens when there is parental leave. The Department of Labour can assist with information about parental leave and you can contact us on 0800 20 90 20. For tax related matters please contact Inland Revenue on 0800 227 774 or go to www.ird.govt.nz.
This section covers common problems. It will not answer every question and should not be used as a substitute for legislation or legal advice.