New Zealand’s government has announced plans to replace the long-troubled Holidays Act 2003 with a comprehensive new Employment Leave Act. After decades of complexity that has cost employers billions in miscalculated leave payments, the proposed legislation aims to create a simpler, more workable system for everyone.
Why the Change?
The Holidays Act 2003 has been problematic since its inception. Its complex calculation methods have been beyond many payroll systems, resulting in widespread underpayments—more than $2 billion in the healthcare system alone. Both employers and employees have struggled to understand entitlements, and previous reform attempts in 2011 and 2018 failed to adequately address these core issues.
Major Proposed Changes
Hours-Based Accrual System
The most significant shift moves away from the current time-based entitlements to an hours-based accrual system.
Annual Leave: Instead of earning four weeks after 12 months of continuous employment, employees would accrue annual leave from day one at a rate of 0.0769 hours for every contracted hour worked (equating to four weeks annually for a standard 40-hour work week).
Sick Leave: Similarly, sick leave would accrue from the first day of employment at 0.0385 hours per hour worked, rather than receiving 10 full days after six months of employment.
Greater Flexibility in Taking Leave
Under the new system, employees could take leave in hourly increments rather than being restricted to full days or weeks. This provides much more flexibility for both workers and employers, particularly benefiting those with variable schedules or part-time arrangements. This currently happens, so nothing new here.
Changes for Casual Workers
Casual employees and those without contracted hours would receive a 12.5% leave compensation payment on all earnings, rather than accruing standard annual and sick leave. This simplifies administration while ensuring these workers receive fair compensation.
Immediate Access to All Leave Types
The proposed Act removes the current six-month stand-down period for sick leave, bereavement leave, and family violence leave. All leave types would be accessible from day one of employment, including for fixed-term employees.
Simplified Leave Calculations
A unified hourly leave pay rate would replace the current complex system that varies across leave types. Leave would be paid at the worker’s base wage for the day of leave, with fixed allowances included—a much more straightforward approach than current “average weekly earnings” calculations.
What Employers Will No Longer Pay For
Some changes will reduce costs for employers:
- Annual leave will no longer accrue while employees are on ACC
- Part-time workers will receive pro-rata sick leave rather than 10 full days regardless of working patterns
Enhanced Transparency
Employers would be required to provide detailed pay statements each pay period, itemizing pay and leave entitlements. This could be in physical or digital form, including online portals, ensuring employees can easily track and verify their entitlements.
Implementation Timeline
The legislation is expected to be introduced to Parliament in early 2026, with the goal of implementation before the next election. However, there will be a 24-month transition period after the bill is passed into law, allowing employers and payroll providers time to adapt their systems. During this period, the current Holidays Act will remain in force.
Mixed Reactions
Business groups have welcomed the reforms, noting that simplification is long overdue and will reduce administrative burden and compliance costs.
Union concerns focus on some workers potentially losing entitlements, particularly:
- Removal of commission and bonuses from holiday pay calculations
- Reduced sick leave for some part-time workers compared to the current flat 10-day entitlement
- Removal of leave accrual while receiving ACC payments
The Council of Trade Unions acknowledged positive elements like day-one leave access and improved casual compensation, but expressed disappointment that simplification came at the expense of some hard-won worker rights.
Looking Ahead
While the Employment Leave Act represents the most comprehensive workplace leave reform in over two decades, its success will depend on effective implementation and whether it truly delivers on the promise of clarity without unfairly disadvantaging workers. The extended transition period recognizes the significant operational changes required, but employers should begin planning now to ensure they’re ready when the new system takes effect.
Public submissions will be invited during the select committee stage, providing an opportunity for workers and employers alike to have their say on these far-reaching changes to New Zealand’s employment landscape.