Your guide to navigating an annual closedown period...

Navigating annual leave and holiday pay entitlements can be tricky for an employer as there are a few variables that can change what an employee is entitled to. In this guide we will set out these variables and how they change employee entitlements.

How does a closedown period work?

An employer is allowed to have one closedown period each year.

Many businesses implement an annual closedown period over the Christmas break so that employees can have a break before coming back to work in the New Year, and this is often when clients or customers are on holiday too, so it makes sense to close down in a quiet period.

Sometimes the closedown will be at another time of the year to fit in with the employer’s quiet period. The employer can choose when that closedown will be and how long the closedown will be. There can only be one per year.

Usually, a business will require its employees to take annual leave over the closedown period, paying them out of their annual leave entitlements for the 2-3 weeks that the business is closed.

An employer must give at least 14 days’ notice before an annual closedown.

What if an employee has no annual leave left?

If an employee has used all their annual leave, there are two ‘standard’ options that an employer can choose from. An employer can either:

• Choose to let them take annual leave in advance. This means that the employee would be paid from their annual leave entitlements from the following year;
• Or allow their employees to take leave without pay.

There is also the option to implement an alternative leave arrangement if it is agreed upon by both the employer and employee.

What if an employee is not yet entitled to annual leave?

If an employee is not entitled to annual leave because they have not yet worked for 12 months continuously, they must be paid 8% of their gross earnings up to the closedown period. For example, if an employee started working in September, they would need to be paid an additional 8% of their earnings from the day they started up to the day the closedown period starts. They would then not be required to be paid during the closedown period.

What about public holidays during the closedown period?

Usually, a closedown period will be scheduled between late December and early January. During this time, the following public holidays are observed:

• Christmas Day;
• Boxing Day;
• New Year’s Day; and
• The day after New Year's Day.

If one of these public holidays falls on a day where an employee is regularly scheduled to work, they are entitled to public holiday pay. This means that an employee will be paid for the day as a public holiday rather than it come out of their annual leave. If an employee does not normally work on the day of the week when the public holiday falls then they do not get paid for that public holiday.

It is important to record an employee’s leave entitlements correctly through the holiday period, as a failure to do so can cause financial distress for employees and administrative headaches for employers. If there is confusion around your employees’ leave entitlements, it pays to seek advice from a professional with experience in the area.