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Pay employees during annual compulsory closedowns

The Holidays Act 2003 contains provisions that allow businesses to have one annual closedown period, this is often over Christmas or seasonally based on industry. A brief overview is included below; however, you will need to consider the full details and current MBIE guidelines by referring to the MBIE website Annual closedowns.

If your employee has been employed for 12 months or more, they will be entitled to annual holidays and you can require them to take those holidays during the closedown provided you give them no less than 14 days’ notice. If your employee does not have enough leave to cover the whole period, you can agree to give them leave in advance or leave without pay. The payment of the leave is the same as any other annual holiday.

There are special provisions for employees who have been employed for less than 12 months (they will not yet be entitled to annual holidays) or those that may have worked for you for 12 months but haven’t reached entitlement due to a period of unpaid leave or a period of pay-as-you-go. In this instance the Act states that you must pay them 8% of their gross earnings (less any amount already taken as annual holidays in advance) as at the closedown date.

In addition:

  • the employee’s anniversary date for annual holidays entitlement purposes is moved to the date the closedown starts (or in some situations, an alternative relevant date nominated by you). You should refer to the MBIE guidance on nominating a proximate alternative date for the employee’s anniversary date
  • your employee may agree with you that they take some of their annual holidays in advance.

Paying for closedown periods

When paying employees during an annual closedown, you will need to apply the specific rules which apply to your employees depending on whether they have been employed for more than 12 months or less than 12 months.

To pay an employee who has worked less than a year

1 . Set the employee’s leave calculation method to Min % of Gross

If you know you are going to have a closedown, set the employee’s leave calculation method to Percent of Gross (Min % of Gross).

  1. From the front screen click Employee > Modify Employee Details > Leave.

  2. Select your employee from the drop down menu at the top of the window.

  3. Click the words Holiday Pay > Calculation Method > Percentof Gross. This method will default to 8% which will be paid when you process the closedown.

  4. Click Go.

2. Pay their last pay before the annual compulsory closedown
  1. Click Calculate Pays.

  2. Calculate your wages as usual for time worked right up to the closedown.

  3. Click Leave > Holiday Pay > Current Employee > Pay Total Owing > Confirm. The Select Regular or Extra Pay window opens.

  4. Click Holiday Paid In Advance, then Next. The Select Extra Pay Tax Rate window opens, and Ace Payroll automatically selects the correct tax rate for your employee based on their annual earnings.

  5. Check that the tax rate is correct, then click Next, then Confirm.

  6. Calculate pay for any public holidays which fall in the closedown period on days your employee would otherwise have worked.

3. Complete a regular pay run

Perform all tasks in the regular payroll procedure, then file the payroll.

4. Change the employee’s leave calculation method to Annual Leave entitlement
  1. From the front screen click Employee > Modify Employee Details > Leave. 
  2. Select your employee from the drop down menu at the top of the window.

  3. Click the words Holiday Pay > Calculation Method.  
  4. Click Opening Entitlement Date and set the date of the start of the closedown period (or a date that is a few days before it, if your closedown start date varies year by year), then click GO.
  5. Ensure that Opening Entitlement Days Owing is set to None, then click GO.
  6. Click First Anniversary Date and set this to one year after the Opening Entitlement Date you entered at step 4, then click GO.
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