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Employment Relations: Employment agreement builder

Section 8: Holidays and Leave – Annual Leave and Holiday Pay

Under the Holidays Act, a full-time employee is entitled to a minimum of three weeks of paid annual leave on the completion of 12 months continuous service. If it is agreed, an employer may wish to grant terms more favourable than the Holidays Act (i.e. four weeks), but the number may not drop below the minimum.

On commencing employment or where a work pattern changes during the year (i.e. going from part-time to full-time work) the parties should agree how the entitlement to the three weeks’ leave is provided. Where a new agreement is reached, it is strongly advisable to record it in writing, and clauses are suggested below that reflect common methods of describing how the three weeks will be calculated.

Short Form Clause on Annual Leave as set out in the Holidays Act
 
The Employee shall be entitled to paid annual leave of three weeks per year after 12 months continuous employment with the Employer, in accordance with the Holidays Act.
Short Form Clause on Annual Leave which is more favourable than the entitlement in the Holidays Act
 
The Employee shall be entitled to weeks annual leave per year...
Longer Form Clause on Annual Leave reflecting the entitlements in the Holidays Act
 
...After 12 months continuous employment with the Employer the Employee shall be entitled to 3 weeks annual leave for that year, and to 3 weeks for each subsequent period of 12 months continuous employment...
Longer Form Clause on Annual Leave which is more favourable than the entitlements in the Holidays Act
 
...The Employee shall be entitled to weeks annual leave for each 12 months of service...
I do not require this clause in my agreement.


The Pay As You Go option for casual employees may be used in two circumstances:
1.   Where the employee’s work pattern is so irregular that the concept of three weeks away from work is difficult to apply;
2.   Where the employee is both casual and on a fixed term agreement of less than 12 months.

This clause should not be used where a regular employment pattern can emerge (For example, a restaurant worker who is available for peak customer levels and overtime comes to work regularly on a Friday/Saturday night, but also occasionally on other nights).

If you decide to use the Pay As You Go option, a clause such as the one below should be included in the agreement.

Note: The minimum payment in lieu of annual holidays must be at least an extra 6%.

Pay As You Go Holiday Pay for genuinely casual employees
 
The Employee is being employed to perform work on a casual as required basis. The Employer shall, instead of paying the Employee during any periods of annual leave, pay the employee’s holiday pay at the same time as their salary payments. The amount of holiday pay is per hour of work, which shall be paid less tax, at the same time as the employee’s salary payments. The employee’s pay slip will identify the employee’s base hourly rate, and the separate holiday pay.


The clauses below are specific to fixed term employees, defined back in section 3. Nature of the Agreement. If the period of the fixed term agreement extends beyond 12 months or it is determined that the work is not genuinely fixed term, the Pay As You Go option cannot be used, and the employee would be entitled to paid holidays regardless of its inclusion.

Where the employee has been recently covered by an earlier fixed term agreement, it is wise to check that their employment is genuinely fixed term in nature.

Holiday Pay for Employees who are on genuine fixed term agreements of less than 12 months duration – where the Employee is to be provided with paid annual leave
 
The Employee shall, during their fixed term agreement be provided with days paid annual leave to be taken at a time agreed to by the parties, or if agreement cannot be reached, as directed by the Employer having been given at least 14 days notice.
Holiday Pay for Employees who are on genuine fixed term agreements of less than 12 months duration – where the holiday pay is paid on an Pay As You Go basis
 
The parties agree that the Employer shall, instead of paying the Employee during any periods of annual leave, pay the employee’s holiday pay at the same time that the Employee is paid their salary payments. The amount of holiday pay is per hour of work, which shall be paid less tax, at the same time as the employee’s salary payments. The employee’s pay slip will identify the employee’s base hourly rate, and the separate holiday pay.
I do not require this clause in my agreement.
About OER | Department of Labour, May 2006. © The Crown