Employees on genuine fixed-term agreements (pay-as-you-go provisions)
The entitlement to four weeks’ paid holiday after 12 months’ service is sometimes not the best way to deal with holidays when the employment relationship is short-term.
The Employment Relations Act allows for fixed-term employment agreements if, on appointment, there is a genuine reason for the fixed term. Examples of genuine reasons:
- “The job is to prune trees in the west block, and your job will cease when all of the trees are pruned. I estimate that this pruning job will take you and your co-workers two months from the start date.”
- “This appointment is for a fixed term to cover for an employee who is taking four months’ leave. The employee will return on [dd/mm/yyyy], and there will be a hand-over period of one week. As a consequence, your employment will cease on [dd/mm/yyyy].”
Where such a fixed-term agreement is for less than 12 months, an employee may agree to the employer adding 8% to their gross weekly earnings in lieu of annual holidays or in lieu of getting an aggregated 8% at the end of the fixed term.
Any such arrangement should be included in the employment agreement, and the 8% should appear as a separate and identifiable amount on the employee’s pay slip. On the completion of the fixed term, the employee will have received all pay for annual holidays. No further payment will be outstanding and no annual holidays are available.
If the employee is later employed on one or more further fixed-term agreements of less than 12 months with the same employer, the same arrangement can be made, even when there is no break in employment, provided the two parties agree and document the arrangement.