20 March 2026
Employer Update
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After many years of task forces, working groups and industry consultation, the Employment Leave Bill (‘the Bill’) has finally been introduced to Parliament.
The Bill is set to replace the Holidays Act 2003 (‘the Holidays Act’) later this year and represents welcomed news to employers in terms of addressing long standing concerns about the Holidays Act.
The primary aim of the Bill is to address the various compliance problems, challenges and uncertainty caused by the Holidays Act. These difficulties have seen employers in New Zealand face major problems relating to the management of employee-related holiday entitlements, which have resulted in adverse consequences for non-compliance like:
In summary, the Bill proposes to change how key types of employee leave will be earned, taken and paid such as annual leave, sick leave, bereavement leave, family violence leave and alternative holidays.
The Minister of Workplace Relations and Safety, Brooke Van Velden states:
What Employers Need to Know – What’s Proposed to Change
The Bill proposes the following specific changes to managing of employee leave:
Annual Leave: Employees will accrue annual leave from their first day of work at a minimum rate of 0.0769 hours of annual leave for every standard hour worked, which is to be recorded in hours (rather than days). The Bill also clarifies that annual leave will not typically accrue during any periods of unpaid leave such as when an employee is off work on ACC. This issue can be a major pain point for employers where an employee is off work long term on ACC but remains entitled to payments for annual leave entitlement.
Sick Leave: Employees will accrue sick leave from their first day of work at a minimum rate of 0.0385 hours per every standard hour worked, up to 160 hours, (unless additional sick leave entitlement is agreed to). This addresses the concern associated with part-time, or variable hour-based employees who work less hours being entitled to 10-days paid sick leave in the same manner as full-time employees.
Bereavement Leave and Family Violence Leave: These remain ‘day-based’ entitlements but arise from an employee’s first day of work and may be taken in-part days.
Alternative Leave: Where an employee works on a public holiday that is an ‘Otherwise Working Day’, then they accrue alternative leave at a rate of one hour for every hour worked, including where they are required to be on-call and available for work by their employer. Alternative leave will be able to be taken on any day the employee would have worked and can be cashed up at any time.
‘Leave Compensation Payment’ for Irregular Hours
The Bill proposes a new ‘Leave Compensation Payment’ (‘LCP’). This allows employers to avoid applying the specific accrual rules to irregular, unpredictable, or additional hours of work, e.g. for casual employees who work irregular patterns of work.
LCP is set at 12.5% of an employee’s ordinary hourly rate, which is paid on all additional and casual hours worked, instead of an employee accruing annual leave and sick leave on those hours based on the proposed accrual rules.
Additional Important Points
‘Standard Hours’ Definition: The Bill proposes that leave will accrue based on an employee’s ‘Standard Hours’, being the hours an employee is required to work for their employer, including any additional hours work above their employment agreement in certain circumstances. Annual Leave balances will not change if standard hours change and is to be taken against standard hours, e.g. if a full-time employee agrees to reduce their agreed working hours to part-time.
Leave Payments: It is proposed that all leave taken under the Bill is paid at an hourly rate. For example, the hourly rate of an employee who is paid a salary is the amount payable for one standard hour’s work and the hourly rate for a waged employee is the lowest hourly rate payable for the day on which the leave is taken, including any fixed allowances that do not vary in value that are required to be paid under an employee’s employment agreement.
Determining Public Holiday Entitlements for Variable Work Patterns: The Bill proposes a new approach for dealing with the management of public holiday entitlements and the ‘Otherwise Working Day Test’. Where an OWD day cannot be determined by reference to an employee’s employment agreement, then a public holiday would count as an OWD if the employee worked for 50% or more of the same day of the week in the preceding 13 weeks prior to the public holiday falling.
Cash-up Rules for Annual Leave: In each 12-month period starting on an employee’s anniversary date, it is proposed that an employee may request to cash up a maximum of 25% of their annual leave.
Transitionary Timeframes
Once the Bill goes through the select committee process, and if it becomes law, then it is proposed that most of the changes will commences two years after the Bill receives royal assent. This is to ensure that employers, employees, payroll providers and other key stakeholders have sufficient time to update their systems and employment agreements to reflect the changes.
There may be other transitionary timeframes specified by Order of Council to allow more time for certain sectors and industries to make the transition such as the education sector.
Employer Takeaway
The Bill seeks to address the ambiguity, interpretation difficulties, anomalies and complexities associated with the current Holidays Act. The information set out above may be subject to further change depending on the outcome of the select committee process.
The objective is to make it simpler and easier for employers and payroll providers to manage employee entitlements for varied working patterns, variable hours and shift work-based arrangements.
The Bill aims to enhance certainty and flexibility for employees and employers to enable the management of more accurate compliance of employee-related holidays entitlements through systemised and clearer approaches. You can read more about the Bill here.
Compliance Signal
The Employment Leave Bill introduces a new framework for managing employee entitlements. While it aims to reduce ambiguity, it is likely to create new areas of interpretation, risk and some uncertainty, particularly during the implementation and transitionary phase.
Employers should begin:
This article is provided for general information only and does not replace professional advice – It provides a high-level overview of proposed legislative changes and may likely be subject to change through the select committee process. It is not a substitute for professional advice. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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