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Cashing Annual Leave

Posted on: Mar 15, 2015

The Holidays Act 2003 provides that on one or more separate occasions an employee can request that his or her employer pay out a portion of the employee’s annual leave entitlement. There are conditions and restrictions to this cashing up provision (sections 28A-F), the main ones of which are outlined below:

  1. An employee can only make a request in relation to annual holidays to which the employee has become entitled. An employer and employer cannot agree to pay out annual holidays in advance of the employee’s entitlement arising.
  2. A maximum of one week can be paid out, but employees can request that only a portion of that week is paid out. Employees must still have a minimum of three weeks away from work.
  3. Cashed up holidays must be paid at the same rate as annual leave.
  4. To ensure that employees are not pressured into giving up one week of leave, the Act provides that the employee must instigate the arrangement and the parties must genuinely agree on the matter. An employer is entitled to have a policy (after consultation with employees) that it will not consider cash up requests.
  5. Labour inspectors and the Employment Relations Authority are given powers to ensure the cash up payment is actually made. If an employer incorrectly cashes up an employee’s annual leave the paid out portion is restored to the employee’s annual holiday balance.

The entitlement to annual holidays has two dimensions: time and money. The employer must not only pay the employee for annual holidays, but must also allow the employee the time off work for rest and relaxation (these are minimum entitlements). This is why it is not possible to cash up more than one week of the annual holiday entitlement.  

In light of the importance placed on minimum entitlements under the Act, if, despite the illegality, the parties went ahead with an agreement of paying out additional annual holidays, the employer might be faced with a claim for payment of the holiday pay (again) at a later date and could also be penalised for breach of the Holidays Act.

Note that the limit on cashing up one week of annual holiday entitlement each year only applies to the statutory entitlement provided by the Holidays Act.  An employee who enjoys a greater entitlement under his or her employment agreement (say 5 weeks annual leave for example) can agree with their employer to cash up any amount of annual holidays in excess of the minimum entitlement.

The minimum entitlement under the Act is currently 4 weeks annual leave.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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