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Covid-19 and Annual Leave

Many employers have applied for and received the Government Covid-19 wage subsidy.  In addition to this, or as an alternative to applying for the wage subsidy, employers may have also negotiated reduced pay, work hours or some other flexible arrangement with their employees with a view to ensuring the survival of their business and the retention of staff.  

The above changes can raise a number of issues and tensions when it comes to employee annual leave, particularly at a time when cash flow is likely to be front of mind for many employers.  As such, employers need to be aware of their obligations when it comes to employee annual leave entitlements.  

Can an employer require an employee to take annual leave?

While an employee can agree to use their annual leave during the closedown period, an employer cannot unlawfully compel its employees to use their annual leave entitlements.  For example, an employer cannot make payment of the wage subsidy subject to its employees agreeing to take annual leave or any other paid leave entitlement.  

In circumstances where an employee has agreed to take annual leave, we strongly recommend that this is recorded in writing between the parties to limit disputes at a later date. 

If agreement cannot be reached between the parties, an employer is only able to require an employee to take annual leave if it complies with the requirements of section 19 of the Holidays Act 2003.  This means that an employer must provide its employees with not less than 14 days’ written notice of the requirement to take annual leave. 

Pursuant to section 19 of the Holidays Act, an employer may also require an employee to take annual leave if it closes down its operations in accordance with the Act.   However, an employer may only close-down its operations (or parts thereof) once in every twelve month period unless otherwise agreed with its employees.  Furthermore, an employer must still provide its affected employees with 14 days’ written notice of the closedown period and the requirement to take annual leave.  

Annual leave payments

If an employee has agreed to take annual leave, or has been lawfully required to take annual leave, an employer can utilise wage subsidy scheme payments to cover those leave entitlements or a portion thereof.  As an alternative, annual leave can be used to top up an employee’s pay over and above the applicable wage subsidy sum. 

It is important to note, however, that when calculating annual leave payments, an employer must always pay the greater of an employee’s ordinary weekly pay or average weekly earnings.  This differs from Public Holidays which are calculated and paid based on an employee's relevant daily pay.  The Holidays Act sets out how each of these different rates must be calculated.  

As an employee’s average weekly earnings means 1/52 of the employee’s gross earnings, in most cases this will result in an employer being required to pay its employees at a higher rate for their annual leave than the applicable wage subsidy sum and/or any other reduced rate of pay agreed with its employees.  

Accordingly, if an employer is relying on the wage subsidy to pay its employees during this difficult time, it should carefully consider the cost of any annual leave payments before agreeing to (or requiring) employees to take annual leave.  Conversely, if annual leave is taken, then this will have the beneficial effect of reducing the business’ accrued liability to pay annual leave.  If the employer can manage annual leave payments, then depending on its circumstances and anticipated workflow, this may be a more preferable outcome.

If you are in doubt as to your options, obligations and/or the requirements of the Holidays Act, we strongly recommend that you seek legal advice.

The above article was written by Mary Crimp.

 

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