For a lot of Kiwi small businesses, the Christmas/New Year period is the busiest time of year. For others, it’s the quietest (or the only time you can realistically shut the doors and let everyone recharge).
Either way, the same tricky questions come up every year: can you direct staff to take leave, what happens with public holidays, and how do you handle employees who don’t have enough leave accrued?
This guide answers the most common employer questions we see about Christmas shutdown annual leave, so you can plan your Christmas closure properly and avoid payroll surprises (or employment disputes) in January.
What Is A Christmas “Shutdown Period” In NZ?
In New Zealand, employers commonly refer to a “shutdown” (or “close down”) period over Christmas and New Year where the business closes or reduces operations for a set period.
From an employment law perspective, it’s important to be clear about what you actually mean by “shutdown”, because different rules can apply depending on the arrangement you put in place and what your employment agreements say.
Common Shutdown Setups
- Full business shutdown: You close the workplace and nobody works (except perhaps owners/directors or a skeleton team).
- Partial shutdown: Some functions close, but others remain open (for example, customer support stays open with a reduced roster).
- Reduced hours trading: You remain open but shorten trading hours, which affects shifts/rosters.
- Rotational leave: The business stays open, but you require different staff to take leave at different times.
Why The “Regular Annual Closedown” Concept Matters
Under the Holidays Act 2003, there’s a recognised concept of a regular annual closedown. This is relevant because employers can require employees to take annual holidays during a regular annual closedown, and special rules can apply to employees who haven’t yet completed 12 months of continuous employment.
In practice, many small businesses have a predictable Christmas closedown each year. If that’s you, you’ll want to treat the closure as a planned, clearly communicated annual closedown rather than a last-minute decision.
If you’re unsure whether your Christmas closure counts as a “regular annual closedown” (or how to document it correctly), it’s worth getting advice early so you don’t create inconsistent expectations year to year.
Can You Require Employees To Take Annual Leave During A Christmas Shutdown?
Usually, yes - as an employer you can generally direct employees to take annual leave in certain circumstances, including where you have a Christmas shutdown/closedown.
The key is that the Holidays Act sets process requirements, and you also need to align what you’re doing with your employment agreements and workplace policies.
If you want a deeper look at the rules and practical examples, annual leave direction rules are a common source of confusion for small businesses.
1) Direction With Notice (The “14 Day” Point)
In many cases, an employer can require employees to take annual holidays if:
- you can’t reach agreement with the employee about when they’ll take leave; and
- you give the required notice (commonly discussed as at least 14 days).
Practically, for a Christmas shutdown, you should aim to give much more than the minimum notice if you can. December rosters, childcare, travel, and family commitments are often locked in early.
2) What If The Employee Doesn’t Have Enough Annual Leave Accrued?
This is a common issue with annual leave over a Christmas closedown: an employee might not have enough annual leave available to cover the whole closure period.
What happens next depends on the employee’s situation and what you agree, but common outcomes include:
- Annual leave in advance: you agree to the employee taking annual leave before it has accrued (this should be clearly recorded).
- Unpaid leave by agreement: if there isn’t enough annual leave available, you can discuss unpaid leave for the balance (but don’t assume it’s automatic without agreement).
- Alternative working arrangements: some businesses keep limited work available (admin, stocktake, training) so some staff can keep working if the business isn’t fully closed.
Because these conversations can become sensitive quickly, it helps to have consistent documentation and a clear process. Many businesses build the shutdown approach into their Workplace Policy so everyone knows what to expect each year.
3) Employees Who Haven’t Hit 12 Months Yet
Employees only become entitled to annual holidays after 12 months of continuous employment, but they may still have:
- holiday pay accrued (which is often visible in payroll systems); and/or
- the ability to take annual leave in advance if you agree.
If you have a regular annual closedown, employees who haven’t yet reached 12 months aren’t “entitled” to annual holidays in the usual way. However, the Holidays Act has specific closedown rules that can apply (including how they’re paid for the closedown period and how their anniversary date for annual holiday entitlements may be affected), so it’s worth checking you’re applying the right treatment for your payroll setup and each employee’s circumstances.
This is one of those areas where getting your approach right (and applying it consistently) can save you a lot of headaches - particularly if you’ve hired seasonal staff or had mid-year turnover.
4) Make Sure Your Employment Agreements Back You Up
If your agreements are vague, it’s much harder to confidently manage December leave. Having clear clauses on hours, rostering, leave requests, and shutdown expectations makes a real difference.
For most small businesses, it’s worth ensuring you’ve got a fit-for-purpose Employment Contract in place for each team member before the holiday period rolls around.
What Happens With Public Holidays During The Christmas Shutdown?
Public holidays often fall right in the middle of a Christmas closedown (for example: Christmas Day, Boxing Day, New Year’s Day, and the day after New Year’s Day).
Even if your business is closed, you may still have to pay employees for public holidays - but only if the day would otherwise be a working day for them.
The “Otherwise Working Day” Test (Why It Matters)
Whether you must pay an employee for a public holiday generally turns on whether the public holiday falls on a day that would otherwise have been a working day for that employee.
This can be straightforward for Monday–Friday staff, but it can get complicated for:
- employees with rotating rosters
- casual employees with irregular work patterns
- seasonal workers
- employees whose hours changed recently
As a small business owner, you’ll want to make sure your payroll and rostering decisions are consistent and evidence-based, because “otherwise working day” disputes can become messy after the fact.
If You’re Closed On A Public Holiday
If the business is closed and it’s a public holiday that would otherwise be a working day for the employee, they’re generally entitled to be paid for that day (based on relevant daily pay or average daily pay rules).
Importantly, you generally should not deduct annual leave for a public holiday. Public holidays and annual leave are different entitlements.
If You Ask Staff To Work On A Public Holiday
If you stay open (or partially open) and an employee works on a public holiday that would otherwise be a working day for them, they will generally be entitled to:
- time-and-a-half for the hours worked; and
- an alternative holiday (a paid day off to take later).
This is a common cost blowout for businesses that “quietly” keep trading over the holidays without planning for the true wage costs. It’s worth forecasting this in advance so you can set rosters and pricing with your eyes open.
Mondayisation And Observed Holidays
Some public holidays get “mondayised” (observed on the Monday) if they fall on a weekend and the employee wouldn’t normally work that weekend day.
This can affect who is entitled to what (and when). If you have a mix of weekend and weekday workers, make sure you double-check the observed dates and how they apply to your roster patterns.
How Do You Handle Casuals, Part-Timers And Employees With Variable Shifts?
Christmas leave and public holidays are often simplest for full-time Monday–Friday employees, and most complex for everyone else.
If you rely on casual or variable-hours labour, it’s worth taking a deliberate approach to documenting patterns and expectations now, rather than trying to reconstruct them during payroll processing in late December.
Casual Employees: Do They Get Annual Leave?
Casual employees can still have leave entitlements, but how those entitlements show up (and how public holidays apply) often depends on their work pattern and how their pay is structured.
Because this area is frequently misunderstood, it’s worth reviewing your approach to casual workers’ leave entitlements well before you announce your shutdown dates.
Variable Hours And The Public Holiday Question
For public holidays, variable-hours staff often raise questions like:
- “Would they have worked that day if it wasn’t a public holiday?”
- “Have they worked enough similar days recently to establish a pattern?”
- “Did we change the roster because of the public holiday/shutdown?”
If you’re making rostering changes leading into Christmas (for example, ramping down hours in late December), it’s worth doing that in a documented, consultative way rather than as a last-minute instruction. This reduces the risk of disputes and helps you fairly apply the “otherwise working day” approach.
Shutdowns For A Team With Mixed Arrangements
If you have a mix of:
- full-time staff
- part-time staff
- casual staff
- contractors
…it’s especially important to avoid a one-size-fits-all email like “we’re closed, everyone take leave.” Different legal rules can apply to different working arrangements, and contractors are a separate category again (they don’t receive annual leave in the way employees do).
Can You Use Time Off In Lieu Or Unpaid Leave Instead Of Annual Leave?
Sometimes, annual leave isn’t the cleanest tool for the Christmas period - especially if you have employees who:
- have recently started and don’t yet have much leave available
- want to save annual leave for another time
- have already booked annual leave earlier in the year
The good news is you can often agree on alternatives, but you need to do it carefully and document it properly.
Time Off In Lieu (TOIL)
Time off in lieu is commonly used where employees work extra hours and take time off later, but it usually relies on what your employment agreement and workplace arrangements allow (rather than being a universal “swap” for annual leave). It also shouldn’t be used in a way that cuts across minimum statutory entitlements.
If your team uses TOIL during the year and wants to apply it around a Christmas shutdown, make sure you have clear rules (for approval, accrual, and when it must be taken). time off in lieu can work well when it’s structured, but it can cause disputes when it’s informal.
Unpaid Leave By Agreement
Unpaid leave can be a practical solution for a shutdown period where an employee doesn’t have annual leave available - but it should be agreed, not imposed without a proper legal basis.
From a relationship perspective, the best approach is usually:
- communicate shutdown dates early
- ask employees to check their leave balances
- invite them to discuss options (annual leave, leave in advance, unpaid leave, alternative work)
- confirm the outcome in writing
Be Careful About “Stand Downs”
Some businesses describe a Christmas closure as a “stand down”, but a stand down is not a free pass to stop paying employees.
Whether you can lawfully stand down an employee depends on your employment agreement and the facts (and it’s an area that can create real legal risk if mishandled). If you’re considering this route, get advice about employee stand down rules before you notify staff.
If your goal is simply to manage a predictable annual closure, a planned annual closedown with annual leave is often the cleaner option (but it still needs to be handled correctly).
A Practical Christmas Shutdown Annual Leave Checklist For Employers
If you want to reduce the risk of disputes and make payroll processing smoother, here’s a practical checklist you can work through each year.
1) Set Dates Early (And Apply Them Consistently)
- Confirm your last trading day and first day back.
- Confirm whether you’ll have a skeleton team working (and which roles).
- Check public holiday dates that fall inside your shutdown window.
2) Check Your Agreements And Policies Before You Communicate
- Do your employment agreements allow for shutdown direction/rostering changes?
- Do you have a clear leave request and approval process?
- Are expectations for Christmas trading/shutdown written down?
If you’re planning to change hours, reduce shifts, or restructure your trading period, you should think through the right process first. For example, if you’re considering a broader hours change beyond just the Christmas week, get advice about reducing staff hours so you don’t accidentally vary employment terms without agreement.
3) Give Clear Written Notice And Explain The Leave Treatment
Your shutdown communication should spell out (in plain English):
- the shutdown dates
- whether annual leave will be required for the closedown days
- what happens on public holidays (generally, they’re not annual leave days)
- who can work during the shutdown (if anyone)
- what employees should do if they don’t have enough leave accrued
4) Confirm Individual Arrangements In Writing
Even if you send a company-wide email, individual situations differ. It’s good practice to confirm in writing where an employee will be:
- taking annual leave
- taking annual leave in advance
- on unpaid leave (by agreement)
- working specified days/shifts
5) Get Payroll Right (Before Everyone Goes Offline)
The Christmas period is where payroll mistakes are easiest to make and hardest to fix (because your bookkeeper, manager, and employees may all be away).
Before your last payroll run of the year:
- double-check “otherwise working day” assumptions for each employee and each public holiday
- confirm annual leave dates and balances
- check time-and-a-half and alternative holiday accruals for any public holiday work
- ensure you’ve documented any leave in advance or unpaid leave agreements
Key Takeaways
- A Christmas closure is often managed as a regular annual closedown, and that’s usually the cleanest way to handle Christmas shutdown annual leave if your business closes at the same time each year.
- You can generally require employees to take annual leave during a shutdown if you follow the correct process and give proper notice, but you should still communicate early and clearly to avoid disputes.
- Public holidays during the shutdown are usually treated separately from annual leave, and employees are generally entitled to paid public holidays if the day would otherwise be a working day for them.
- If employees work on a public holiday, you’ll usually need to pay time-and-a-half and provide an alternative holiday, so plan rosters and wage costs in advance.
- Casual and variable-hours staff can be more complex to manage over the shutdown period, so make sure you’re applying consistent rules and documenting working patterns.
- If an employee doesn’t have enough annual leave, options may include annual leave in advance or unpaid leave by agreement, but you should avoid informal arrangements that aren’t recorded.
- Strong employment agreements and clear policies make Christmas shutdown planning significantly easier, especially for small businesses with mixed roles and rosters.
If you’d like help planning your Christmas shutdown, updating your employment agreements, or putting a clear leave process in place, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
