Can Employees Be Forced To Take Annual Leave? (2026 Updated)

Annual leave sounds simple in theory: your employee takes time off, gets paid, and comes back refreshed.

In real life, it can get messy fast - especially when business is quiet, you’re shutting down over Christmas, or you’ve got staff with a big annual leave balance that keeps growing.

This guide is updated for current New Zealand employment law settings, and it’ll walk you through when you can require annual leave to be taken, when you can’t, and how to handle the conversation in a way that’s fair (and reduces the risk of a personal grievance later).

What Does New Zealand Law Say About Annual Leave?

In New Zealand, annual leave is mainly governed by the Holidays Act 2003.

Most employees become entitled to at least 4 weeks’ paid annual holidays after they’ve completed 12 months of continuous employment. Before then, an employee may have “annual leave in advance” depending on what you agree to, but they generally won’t have a legal entitlement to take their full annual holidays until the anniversary date.

As an employer, you also have duties under broader employment law principles, including:

• Good faith obligations (you and your employee must be open and honest, and not mislead each other).
• Reasonableness and fairness in decision-making.
• Following the employment agreement and any workplace policies that apply.

If you’re not sure whether your paperwork supports what you want to do, it’s worth checking your Employment Contract wording first - the Holidays Act sets the legal baseline, but your agreement and policies shape how you apply it day-to-day.

Can You Force An Employee To Take Annual Leave?

Sometimes, yes - but not “whenever you feel like it”. In New Zealand, employers can require an employee to take annual leave in certain situations, as long as the process is handled properly.

The most common situations where employers ask this question are:

• your business has a planned shutdown (for example, over the Christmas/New Year period);
• your employee has a large annual leave balance and you need to manage fatigue and compliance;
• there’s a genuine lull in work and you’re looking for a lawful way to reduce wage cost temporarily.

Where employers get into trouble is treating “directing annual leave” as an automatic right, without consulting or giving proper notice. Even when the law allows you to require annual leave, you still need to act in good faith and be procedurally fair.

It’s also important to separate:

• Requesting annual leave (an employee asks and you approve/decline); and
• Directing annual leave (you require the employee to take it).

Those are very different from a risk perspective.

When Can You Direct Annual Leave (And What Notice Is Required)?

The Holidays Act allows an employer to require annual holidays to be taken if:

• you and the employee can’t agree on when annual leave will be taken; and
• you provide the employee with at least 14 days’ notice of the requirement.

In practice, that means you should treat “directing annual leave” as a last step after you’ve tried to reach agreement.

What Does “Can’t Agree” Look Like In Real Life?

Usually, it looks like you:

• tell the employee you want them to take annual leave during a certain period;
• explain the business reason (for example, the business will be closed, or the team needs to manage high balances);
• invite them to propose alternative dates if possible;
• consider their response genuinely; and
• only then, if you still can’t reach a workable agreement, you issue a written direction with at least 14 days’ notice.

Done properly, this is usually straightforward. Done poorly (for example, announcing it the day before, or refusing to listen), it can create a trust breakdown and an employment dispute.

Do You Need To Put The Direction In Writing?

While the law focuses on notice rather than “writing”, putting it in writing is best practice. It gives clarity on:

• the dates of leave;
• how it will be paid; and
• that you’ve met the 14-day notice requirement.

Also, if an employee later claims they were pressured or not notified properly, having a clear written record can save you a lot of time (and stress).

What About Christmas Shutdowns And Closedown Periods?

For many New Zealand businesses, the biggest annual leave flashpoint is the Christmas/New Year period.

If your workplace has a closedown period (for example, you close for two weeks every December), you can usually require employees to take annual leave during that time, as long as you follow the legal rules for closedowns and provide appropriate notice.

Closedowns are common in industries like:

• construction and trades,
• manufacturing,
• professional services (smaller firms), and
• hospitality businesses that shut temporarily.

Why Closedown Rules Matter

Closedown periods are treated a bit differently under the Holidays Act. For example, some employees may not have become entitled to annual holidays yet (because they haven’t hit 12 months), and that can affect how their leave is paid during a closedown.

Because of that, it’s worth getting your setup right early - especially if you’re hiring and you know you’ll shut down each year. Having a clear clause in your employment documents (and a consistent internal process) is key.

Also, if your “closedown” isn’t genuine (for example, you tell employees the business is closed but you keep operating and just roster different staff), you can create risk. If you need to reduce work hours rather than close completely, that becomes a different conversation (and often requires consultation and agreement).

Where things start to overlap with other employment decisions is if you’re also looking at changing rosters or reducing hours. That’s a separate process, and if you’re in that situation, handling reducing staff hours correctly matters just as much as managing annual leave.

What You Can’t Do: Common Mistakes That Create Legal Risk

Even well-meaning employers can accidentally cross the line when trying to manage leave balances or cash flow.

Here are the big “don’ts” we commonly see.

1) Forcing Annual Leave Without Proper Notice

If you tell an employee on a Friday that they “have to take annual leave” starting Monday, you’re likely not meeting the notice requirements (unless the employee genuinely agrees).

That can lead to allegations you acted unreasonably or breached good faith.

2) Using Annual Leave As A Substitute For Sick Leave

If an employee is sick, or can’t work due to illness or injury, annual leave generally shouldn’t be used as the default option.

Employees may be entitled to sick leave (once eligible), and the law treats sickness differently from a holiday.

This comes up a lot with “mental health days” too. While an employee might ask to use annual leave, they may also be entitled to sick leave depending on the circumstances. If you’re navigating that situation, be careful not to pressure someone into using annual leave when sick leave would be appropriate - the better approach is to follow your normal process for illness-related absence (including medical certificates where lawful and reasonable). You can also sanity-check your approach against how workplaces commonly manage a mental health day.

3) Cashing Out Annual Leave Without Meeting The Rules

“Cashing out” annual leave can be lawful in New Zealand, but it must meet strict requirements - typically it needs to be initiated by the employee and properly documented, and it’s capped.

If you pay out annual leave informally to reduce a big balance, you may be creating compliance risk (and potentially payroll/tax issues too).

4) Treating Employees Differently Without A Good Reason

If you direct only certain employees to take leave (for example, one person you don’t like), while others are allowed to keep working, that can look like:

• discrimination,
• unjustified disadvantage, or
• bad faith conduct.

You don’t need to treat every employee identically in every situation, but you do need consistent, defensible reasons for your decisions.

5) Using Annual Leave To Avoid Other Employment Processes

Annual leave is not a “fix” for performance problems, misconduct, or restructuring.

For example, if the real issue is that you have no work for a role on an ongoing basis, you may be looking at a restructure or redundancy process - and “making them take annual leave” won’t remove those obligations.

Similarly, if you want someone out of the business immediately, you can’t just push them onto leave without basis. That’s where more formal concepts like notice periods and payment in lieu of notice may come into play, depending on your employment agreement and the situation.

How To Manage Annual Leave Properly (Practical Steps For Employers)

If you’re trying to manage annual leave balances in a way that’s lawful and keeps your team onside, a simple process helps.

1) Start With Your Employment Agreement And Policies

Your first step is checking what your employment agreement says about:

• how leave is requested and approved;
• closedown periods;
• notice requirements;
• how leave balances are managed; and
• how disputes are handled.

If you don’t have clear, tailored documentation, you’re more likely to end up in arguments about “what we usually do” (which is never as clear as you want it to be when things go wrong).

For many businesses, tightening up the Employment Contract and having a consistent handbook policy is the easiest way to reduce leave disputes long-term.

2) Have The Conversation Early (And In Good Faith)

If you know you’ll need people to take leave during a quiet period, don’t wait until the week before.

Raise it early, explain the business reasons, and ask for preferences. When employees feel consulted, they’re much more likely to agree (and you’re less likely to need to rely on a formal direction).

3) If You Need To Direct Leave, Follow A Clear Notice Process

If you can’t reach agreement, and you’re going to direct leave:

• make sure the employee is actually entitled to annual holidays (or you’ve clearly agreed annual leave in advance);
• give at least 14 days’ notice;
• set out the dates clearly;
• confirm how it will be paid; and
• keep a record of your earlier attempts to agree.

4) Be Careful When Business Is Quiet: Annual Leave Vs Stand-Downs

When work dries up, it can be tempting to “send people on annual leave” as a quick fix.

But if the real issue is that you don’t have work available (and you’re trying to avoid paying wages), you need to be careful. Depending on your employment agreement and the circumstances, a stand-down may or may not be lawful, and it’s not something you can simply impose without risk.

If you’re thinking along these lines, it’s worth understanding what an employee stand down is and when it can apply, because it’s a separate concept to annual holidays.

5) Don’t Forget Your Health And Safety Duties

While annual leave is a Holidays Act issue, leave management also connects to workplace wellbeing and fatigue.

Under the Health and Safety at Work Act 2015, you have a duty (so far as reasonably practicable) to ensure the health and safety of workers. That includes managing risks like fatigue, especially in high-pressure or safety-critical roles.

Encouraging regular breaks and annual leave isn’t just “nice to have” - it’s part of running a sustainable workplace.

Key Takeaways

• You can require employees to take annual leave in New Zealand in certain situations, but you generally need to try to reach agreement first and then provide at least 14 days’ notice if you’re directing leave.
• Closedown periods (like Christmas shutdowns) are common, but they need to be handled carefully because employee entitlements and payment calculations can differ depending on their anniversary date and leave balance.
• Forcing annual leave without proper notice, using annual leave instead of sick leave, or applying leave directions inconsistently can create real legal risk and damage trust.
• If business is quiet, annual leave isn’t always the right tool - stand-downs, reduced hours, or restructuring each have their own legal requirements and should be handled separately.
• Clear contracts and policies make annual leave management much easier, and help you stay consistent and fair across your team.

If you’d like help reviewing your employment documents or managing annual leave (including closedown periods), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.