• Leah Norman

Shutdown Periods - What is the process?

Christmas is coming, time to organise your shutdown period!

New Zealand employment law allows employers to implement one annual close-down each year in which they close all, or part of, the operation and require employees to take annual leave (even if they don’t have enough leave to cover the break). Many of our clients, like a majority of employers, decide to shutdown for a few weeks over the festive season and give their workers (and the management team) some time with friends and family, but some seasonal industries have closedowns at the end of a particular season.

If you usually close down over Christmas or you’re thinking about it for the first time, doing it properly is important.

Christmas, and the end of the year can be a hectic time. And a "regular annual close-down" can be good business decision for a number of reasons.

  • Taking a break is good for workers health and wellbeing. There are always the workers that never stop working. A shutdown period ensures that these workers and management get a break.

  • Reduces Annual Leave liability for your company because some time is taken off worker’s annual leave entitlements. This still allows time for a break during the year.

  • Stops staff saying they will be available and then letting anyone down. This time of year, is a difficult busy time, staff who don’t turn up to work create further stress that is unnecessary.

  • Increases worker engagement because they know they will get a break to be with their families over the all-important Christmas period.

Shutdowns should be a time of celebration for your team. However, 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.

It is best to start communicating your shutdown period with your staff earlier in November, getting their feedback as to how long they want off, and how it affects them and their income. Like everything in New Zealand employment law, any close-down requires that your business follows a process and if you don't get it right, it can cause unnecessary hassle.

Shutdown periods must be communicated to staff at least 14 days before the shutdown period (although the earlier, the better), and while there is no legal requirement for this to be in writing, it is recommended, just to assist in avoiding any confusion. And employment agreements don't have to have a close-down clause, but we recommend you have this clause as it makes the requirement very clear.

During the close-down, should you choose, you can direct your employees to take annual leave.

This is easy where the employee has enough annual leave to cover the break. The employee gets 14 days’ notice, they are required to stop work and take whatever balance they have available, and use this. It is calculated as per normal holiday leave.

If the employee doesn’t have a high enough annual holidays entitlement balance to cover the whole close down period, then they take the balance owing, and at the discretion of the employer may take some annual leave in advance, and/or leave without pay.

For staff who are not entitled to annual leave during this time because they haven’t worked 12 months continuously for you, or they have no entitlement to annual leave, or they have been paid their annual leave as they go then they must get paid 8% of their gross earnings as at the close down date from:

  1. the start of their employment if they haven’t worked continuously for 12 months or

  2. their last anniversary date for annual holidays if they have already worked for you for at least 12 months, less any amount already paid as 8% pay as you go or already taken as annual holidays in advance.

You may agree with the employee to taking some of their annual holidays in advance or change the employee’s anniversary date for to ensure they are entitled to all their annual leave at the start of shutdown periods.

If you do choose to change the anniversary date of your employee to either the start of the shutdown period or another suitable date, this will become the date when their annual leave entitlement kicks in each year regardless of their actual start date. We would only suggest this for those businesses that have a regular shutdown period every year and the date decided upon must be associated with the shutdown period.

For example, when there is a Christmas close down, the date could be set at 15 December to make sure that it always comes before the annual close down starts. This will mean that unless the employer agrees that an employee can take annual holidays in advance, the employee will always get their full entitlement to annual holidays just before the start of the close down. This is the only situation where an employer can choose a particular date for employees to be entitled to annual holidays.

And remember; Public holidays are paid if the day would “otherwise be a working day”. If a public holiday falls, or an employee wants to take sick leave, bereavement leave day or an alternative holiday, during a closedown period, the employer needs to decide whether the day is an otherwise working day for the employee (i.e. if the closedown was not in force). If it is an otherwise working day, then the employee will be entitled to the day as a public holiday, sick leave day, bereavement leave day or alternative holiday as appropriate.

This applies to the close-down period as if the close-down was not in effect, meaning employers can’t claim that it is not a working day because business is closed.

5 simple steps for closing down

  1. Decide if there will be a close-down.

  2. Set the dates.

  3. Notify your people with a simple letter as early as you can, at least 14 days out.

  4. 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.

  5. Then enjoy the break! Breathe a sigh of relief, crack a beer, and fire-up the BBQ...

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.