If you’re planning to close down your business over summer and the festive season, doing it properly is important.
For most of us Christmas is a hectic time. Work and personal commitments escalate in the mad rush to Xmas Day.
While some industries (such as retail and hospitality) enter their busiest time of year, many industries prepare to wind down for a summer break and (usually) the “regular annual closedown.”
Before you shut up shop, there can be a lot to get done: last orders, final repairs, gifts for clients, December billing, Christmas functions, and a busy personal life.
Like everything in New Zealand employment law, any closedown requires that your business follows a process and if you don't get it right, it can cause unnecessary hassle.
With a little bit of planning your closedown can be seamless and not get in the way of everything else that's happening.
Annual closedown periods and New Zealand law
The annual closedown period is when an employer temporarily shuts down all or part of their business. Under New Zealand’s Holidays Act 2003, employers can require employees to take annual leave during a closedown, provided they give at least 14 days’ written notice.
The annual closedown usually happens over the Christmas-New Year period, but it doesn’t have to. If your manufacturing operation regularly closes down in June for 4 weeks of servicing and maintenance, this can be your annual closedown instead.
Employers don’t have to close the entire workplace. For example, engineers, maintenance or manufacturing staff might continue working while the office closes down. Or the office may stay open for customer service queries but wider operations shut down.
Employment agreements don't have to contain a closedown clause, but we recommend you have this clause as it makes the requirement very clear.
The closedown must be for about the same length of time each year and you can only implement one annual closedown per year and require employees to use their annual leave. You can have additional, non-statutory closures but you and your employees need to agree on how you will handle time off.
How to notify employees of an upcoming annual closedown
Employers must provide employees at least 14 calendar days’ notice of the closedown. While there is no legal requirement to notify in writing, we recommend writing a simple letter informing staff of the closedown dates. This helps avoid any confusion.
Although the legal minimum notice is 14 calendar days, we recommend doing this as early as possible. Leaving it to 2 or so weeks before Xmas doesn’t give a lot of time for people to plan or for you to deal with any questions or issues that may arise.
If you know you’re closing down, deal with it early - and remember to include a bit of festive cheer! Your letters and communications don’t have to be too dry and legalistic – you could wish everybody a Merry Christmas and a good holiday.
Sample letter notifying employees of upcoming annual closedown
[Company name]
[Address 1]
[Address 2]
[Address 3]
[New Zealand]
[Date]
[Full Name]
[Address]
[Address]
[Address]
Dear [Employee’s first name]
Notice of annual closedown
As per the terms of your employment agreement, I am writing to inform you of the company’s intention to undertake a closedown of our business/organisation from [date] to [date].
You will not be required to work during this annual closedown.
Over the period of the annual closedown, we will handle annual leave and public holidays in accordance with the Holidays Act, as it applies to you:
- During the closedown, we will utilise your annual leave entitlement to pay you for any of your usual days of work that are not declared public holidays: [list of public holidays during the closedown, e.g. Christmas Day, Boxing Day].
AND (if the employer wants to offer leave in advance of entitlement):
- If you do not have enough available annual leave to cover these days, I am pleased to let you know that we will grant you access to annual leave in advance of entitlement. This will ensure you do not miss out on pay at this important time of year.
If you do not wish to use annual leave in advance of entitlement, the remainder of the closedown will be a period of unpaid leave. Please let me know if this is your preference by [date (7 days from issue of letter)]
OR (if the employer doesn’t want to offer leave in advance of entitlement):
- If you do not have enough available annual leave to cover these days, the remainder of the closedown will be a period of unpaid leave.
If you have any questions or concerns about this closedown or the treatment of your pay and leave, please don't hesitate to contact me prior to the closedown taking place. If we do not hear from you, we will go ahead with the closedown and leave payments in accordance with the Holidays Act.
Have a nice break.
Yours sincerely,
[Name]
[Job title]
Use of annual leave during the annual closedown
During the closedown, the employer can direct employees to take annual leave (as long as you give them at least 14 days' notice).
This is straightforward when the employee has enough annual leave entitlement to cover the whole break.
If an employee doesn’t have enough leave entitlement to cover the shut-down, then the rest of their time off is unpaid, or you can agree to let them take annual leave in advance (i.e. annual leave accrual). This ensures the employee is not out of pocket, but it does come at a cost to the business.
Employees who aren’t yet entitled to annual holidays, e.g. they have been working for you for less than 12 months, must be paid 8% of their total earnings up to the date the closedown starts (less any annual leave they’ve taken in advance of entitlement). You also need to move their leave entitlement date to the day the annual closedown starts to ensure they don't miss out on any annual leave benefits.
Alternatively, you can nominate a date close to the closedown start date, as long as it doesn’t disadvantage the employee.
How to pay staff during the closedown period
As with any annual leave payment, employees can request to have the leave paid out in full, in advance of the closedown. But it is much more common for leave to be paid in the normal pay cycle.
Make sure all your employment agreements specify how you will handle annual leave payments.
Accounting for public holidays during the annual closedown period
You must pay employees for public holidays if the day would be an "otherwise working day”, i.e. a day that the person would’ve normally worked if it wasn't a public holiday.
This applies to the closedown period as if the closedown was not in effect, meaning employers can’t claim that it is not a working day because the business is closed and employees are on annual leave.
Learn more about paying public holidays correctly.
Paying casual employees over the annual closedown period
Casual employees are employed on an as-needed basis and typically don’t have ‘regular’ working days.
If you have casual employees with no set engagement or pattern to what days or hours they work, you are not required to offer them work over the closedown period or pay them anything during this time.
However, if you have casual employees who are working set days and hours over a specific period of time (e.g. to cover the leave of another employee, or to help through a busy season) and they would normally work on a public holiday during the closedown (e.g. 25 December), then they are entitled to be paid for that public holiday (same rules as for your permanent employees).
For more information, read our blog post on paying part time and casual staff.
5 simple steps for closing down
- Decide if there will be a closedown.
- Set the dates.
- Notify your people with a simple letter as early as you can, at least 14 days out.
- Be prepared to speak to anybody who raises an issue so problems are dealt with effectively and the right outcome is achieved for the business and staff.
- Then enjoy the break! Breathe a sigh of relief, toast the season, and fire up the BBQ…
