A summer closedown may seem straightforward, but the Holidays Act requirements around leave, public holidays, and payroll catch many employers off guard. With the Christmas/New Year period approaching, here's what you need to know to stay compliant with the Holidays Act 2003.

What is a closedown period?

Under the Holidays Act 2003, an employer can close all or part of their business once every 12 months and require employees to take leave, provided 14 days’ notice is given. Most closedowns happen over Christmas, but you can choose any time of year and apply different rules to different parts of your business. There’s no set maximum length, but most closedowns last around 2 weeks. Longer periods can create issues for employees’ leave entitlements, so two weeks is generally recommended.

Payroll rules during closedown

How you pay employees depends on their leave status:

Employees with enough entitled annual leave

• They must use their annual leave for the closedown.
• Pay them the higher of ordinary weekly pay at the start of the holiday or their average weekly earnings over the past 12 months.

Example: Emma has a closedown period clause in her employment agreement and her employer notifies her that the business will close from 23 December 2025 to 7 January 2026. Emma has enough leave to cover this period. She uses her annual leave, and public holidays during the closedown are paid separately.

Employees with some annual leave entitlement but not enough

• Use remaining annual leave first.
• For the balance, either agree to annual leave in advance (deducted from next year’s entitlement), or leave without pay.

Example: Liam has only 4 days of leave left when the closedown starts. He and his employer agree he’ll take the rest as leave in advance. In the absence of such agreement, Liam would be on leave without pay. He will still get paid for the public holidays during this period though.

Employees with no annual leave entitlement

• Pay 8% of gross earnings since their start date (or their last entitlement anniversary), and
• Reset their anniversary date to the start of the closedown.
• Optional: agree to leave in advance, but consider future implications (i.e., negative leave balance moving forward).

Example: Sophie started work in August 2025 and has no leave entitlement yet. Her employer pays her 8% of her earnings and moves her anniversary date to 23 December. She will still get paid for the public holidays during this period though.

Public holidays and other leave

If a public holiday falls during the closedown and would have been a normal working day, it does not count as annual leave. Sick leave, bereavement leave, and family violence leave also apply if the day would otherwise have been worked. 

Starting a closedown for the first time

You can introduce a closedown even if it’s not customary, but consult employees in good faith and give at least 14 days’ notice.

Future changes

The Holidays Act is due for reform, and this will most likely change the rules regarding closedowns, but for now, these above rules remain in place.

Key tips for employers

• Give clear notice and document closedown arrangements
• Check each employee’s leave status before the closedown
• Avoid agreeing to too much leave in advance; it can create problems later
• Pay correctly under the Holidays Act 2003 to avoid compliance issues.

If you have any questions, please reach out to our Employment Law Team.

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