New Zealand's leave laws are getting a significant overhaul. The Employment Leave Bill will replace the Holidays Act 2003 with a new framework designed to be clearer, simpler, and easier to apply across all kinds of working arrangements. The current law has long been criticised as complex and difficult to work with – especially for payroll systems – and widespread non-compliance has been the result. This Bill is the Government's answer to those problems.
Purpose of the changes
The Holidays Act 2003 has caused headaches for employers, payroll providers, and employees for years. It is hard to interpret, tricky to apply to people who work variable or irregular hours, and notoriously difficult to build into payroll software. The Employment Leave Bill starts fresh. It introduces a new framework built around a clearer set of concepts, so that employers and employees can more easily understand what leave they are entitled to and how it is calculated.
Key provisions
Annual leave: accruing from day one, measured in hours
Under the new framework, annual leave would start accruing from an employee's first day of work. The minimum accrual rate is proposed to be 0.0769 hours of annual leave for every standard hour worked. Leave would be recorded and taken in hours rather than days. Annual leave would continue to accrue during paid statutory leave, parental leave, volunteer leave, and jury service – but not during unpaid leave or periods when the employee is receiving ACC compensation. If the number of an employee's standard hours changes, their existing annual leave balance would not be adjusted.
Sick leave: hours-based, with a cap
Sick leave would also accrue from day one, at a rate of 0.0385 per hour. It would apply to both standard hours (the hours an employee is required to work under their employment agreement) and additional hours (the hours in excess of standard hours if the employment agreement provides for additional payment). A cap of 160 hours is proposed, unless the parties agree to a higher amount in the employment agreement. This is aimed at addressing the inherent unfairness in part-time employees receiving the same number of days sick leave as full-time employees.
Bereavement and family violence leave: still day-based, but more flexible
Bereavement leave and family violence leave would remain as day-based entitlements. They would be available from the first day of employment, and employees would be able to take part-days of these entitlements – something the current law does not clearly allow.
Public holidays: a clearer test for variable workers
One of the trickier questions under the current law is whether a public holiday falls on a day an employee would "otherwise" have worked. The Bill introduces a new otherwise working day (OWD) test to make this more straightforward. For employees whose employment agreements do not specify set days of work, a day would count as an OWD if the employee worked (or was on paid or unpaid leave) for 50% or more of that same day of the week in the preceding 13 weeks. This would provide a clear, objective benchmark – particularly useful for employees with variable rosters.
Alternative leave: hours-based and cashable at any time
It is proposed that when an employee works on a public holiday that is an OWD, they accrue alternative leave at a rate of one hour for every hour worked (or on call, where their agreement requires them to be available). Alternative leave would be taken on any day the employee could otherwise have worked, and it can be cashed up at any time – giving employees more flexibility about how they use it.
Leave compensation payment: a simpler approach for irregular hours
Rather than applying complex accrual rules to additional and casual hours, the Bill introduces a leave compensation payment (LCP). Employers pay the LCP at a rate of 12.5% of the employee's ordinary hourly rate on those hours. This represents a deliberate shift from storing and accruing leave to employees receiving a simple compensation payment that reflects their leave entitlement for those hours.
Multiple roles will be treated separately
The Bill proposes that where an employee works in multiple roles or under more than one employment agreement with the same employer, each role or agreement will be treated separately. This should reduce ambiguity but will make clear documentation and accurate payroll records essential, particularly when employees change roles or hold dual arrangements.
When would the new law take effect?
Most of the Bill (once passed) will come into force two years after Royal assent. That lead-in time is deliberate – it will give employers, payroll providers, and others the time they need to update their systems, processes, and employment agreements. There is also a specific carve out for the schooling sector, which will have 10 years after Royal assent, or earlier if brought forward by an Order in Council to update their systems and process.
What should employers do before the Employment Leave Bill takes effect?
The Bill is awaiting its First Reading and will likely be referred to the employment Select Committee. Once that occurs, we would encourage employers to make submissions on this, which we would be happy to assist with. We will track the Bill’s passage through Parliament and update you as key details are confirmed.
For more information and advice about these proposed changes, please contact a member of our employment team.
