The business advantages of a shutdown are obvious – cost savings, fewer customers around, suppliers are also closed and it ensures employees have a break from work and return refreshed, even those who try to avoid taking annual leave. However many employees don’t like the practice, and it may have hidden costs in terms of disengaged employees and higher staff turnover.

 

Why some employees dislike it

Christmas/New Year suits many employees as a time to take annual leave. It is the impact on other employees that can cause problems, particularly the following employees:

  • Those who started during the year and have yet to accrue a full year’s annual leave entitlement. They may not have accrued enough paid leave to cover the shutdown, so unless you are willing to pay them in advance, part of their compulsory leave will have to be unpaid. You will however need to refer to the industrial instrument the employee is engaged under as you may be required to pay the employee ordinary pay during this period if they have insufficient annual leave available.
  • Note that 3-12 months is one of the main 'danger' times for employee turnover. Employees have been there long enough to form some firm opinions of what your business is like to work for and whether the job suits them, so giving them some “bad news” can be risky. 
  • Those with cultural backgrounds who don't observe Christmas but may have other celebration times/events at other times of the year.
  • Those who want to save their annual leave for non-peak holiday times (cheaper and easier to book) or who want to take their full 20 days per year at once, eg to take an overseas trip. If they are continually expected to take part of their entitlement each Christmas/New Year it may take them several years to accrue enough leave to achieve their goals. 
  • Those who prefer to use a 'quiet' time at the workplace to catch up on major projects or do “housekeeping” type of work that they cannot find enough time for during busier periods.

 

What are the costs to your business?

  • Employee disengagement, driven by losing control over a part of their employment conditions, and resentment that an organisation that preaches “flexibility” fails to actually provide it.
  • Increased labour turnover, if employees choose to move to other employers who are more accommodating of their preferences for taking leave – especially larger ones.

 

What can you do?

Small businesses usually have less flexibility (and perhaps more cost pressures) to accommodate employees, but it’s in their interests to try to do so.

The following are some possible options:

  • The regular informal conversations that managers should be having with each employee should identify what his/her circumstances and preferences are.
  • Close the business but allow the employee to work from home during the break if possible. If you are worried that the employee may be distracted by family celebrations, sporting events, etc, discuss and set work outcomes beforehand.
  • Allow employees to take unpaid leave during Christmas/New Year. They will lose work income (you may still have to pay them for public holidays) but some may consider this option worth the trade-off. 
  • Pay employees for the compulsory shutdown leave, but let them take unpaid leave at another time that suits both parties.

All these options are likely to be cost-effective in cases where many employees regard the loss of annual leave flexibility as a potential deal-breaker. There will be indirect savings that may offset the upfront costs.

Finally, when hiring new employees, mention the compulsory December/January annual leave policy before making the job offer. They may not like it, but at least they can make arrangements to deal with it and it won’t be a nasty surprise later on.

 

Taking annual leave during a shutdown

In 2022, the Fair Work Commission issued a decision to insert a new plain English model clause in multiple modern awards on the subject of taking annual leave during shutdowns. 

The decision, which impacts 78 modern awards, means employers will no longer be able to direct employees to take unpaid leave during a shutdown.