Yesterday afternoon, the Government introduced the Employment Leave Bill (Bill) to Parliament, which proposes to repeal and replace the Holidays Act 2003 with a new Employment Leave Act. In the biggest change to New Zealand’s leave framework since 1981, the long-awaited Bill completely redesigns how leave entitlements are accrued, taken and paid.

Our Employment team has been advocating for an overhaul of the Holidays Act for more than a decade, with a key focus on the need to move from a “days” and “weeks” based model to an hours-based framework. We are pleased that the Bill does this - creating a standardised, hours-based framework with only one calculation methodology (rather than the current five). 

The stated policy objective is to deliver greater simplicity, clarity and certainty for both employers and employees, while improving compliance outcomes across the labour market. We consider the Bill is a positive step forward in achieving this objective. However, bringing “simplicity” to leave entitlements is easier said than done and we expect there will still be various issues to work through, particularly for employers with complex working arrangements. 

We will be closely reviewing the Bill and making submissions. We encourage clients to review the Bill and make their own submission, or to share their feedback with us so that we can incorporate this in our feedback.

Key changes under the Bill

Leave accrued in hours, not days or weeks

Under the proposed framework, annual leave and sick leave would accrue in hours, rather than days or weeks, from an employee’s first day of employment. Accrual would be calculated by reference to an employee’s standard hours and leave balances would be recorded and taken in hours.

This represents a significant shift from the current entitlement model, under which annual leave crystallises after 12 months of continuous service. The hours-based approach is designed to better reflect actual working patterns, particularly for part-time, variable-hours and shift-based employees, and to simplify payroll calculations.

Clear distinction between types of hours

A core feature of the Bill is the introduction of three distinct categories of working time:

• Standard hours - hours an employee is required to work under their employment agreement and for which the employer must pay them
• Additional hours - hours worked above standard hours, where the employee is entitled to additional payment for those hours
• Casual hours - hours worked where there is no obligation on the employer to offer work or on the employee to accept it.

These categories underpin how leave accrues and is paid. By clearly differentiating between types of hours, the Bill seeks to remove ambiguity that has historically made leave entitlements difficult to calculate for employees with irregular or mixed work arrangements.

Simplified leave payments

The Bill proposes a single hourly leave payment rate for all types of leave, replacing the multiple calculation methods currently required under the Holidays Act. This would remove the need to assess and compare different pay metrics when leave is taken.

Fixed allowances payable under an employment agreement would continue to be paid during leave. However, variable remuneration - such as bonuses, commission and incentive-based payments - would generally be excluded from leave pay calculations. This reflects a policy decision to prioritise predictability and consistency over inclusion of variable earnings.

Leave compensation payment for casual and additional hours

Instead of accruing annual and sick leave on casual and additional hours, employees would receive a Leave Compensation Payment (LCP) equal to 12.5% of their ordinary hourly rate for those hours worked.

The LCP is intended to provide a straightforward alternative to accrual where hours are irregular or unpredictable, reducing administrative complexity for employers while ensuring employees receive compensation in lieu of leave entitlements.

Public holidays and alternative leave clarified

The Bill refines the approach to public holidays by introducing a revised “otherwise working day” test for employees whose working patterns are not clearly specified. This is intended to provide greater certainty when determining public holiday entitlements for employees with variable schedules.

Where employees work on a public holiday that would otherwise be a working day, alternative leave would accrue on an hour-for-hour basis, aligning entitlements more closely with actual time worked.

Timing and implementation

Most provisions of the Bill are proposed to come into force two years after Royal assent, allowing employers, payroll providers and other stakeholders time to update systems, employment agreements and internal processes.

However, once the provisions come into force, employers will still have a further one-year transition period to update their employment agreements to align with the new legislation. This is intended to give employers time to update relevant clauses without requiring all employment agreements to be immediately compliant on commencement. However, the Bill specifies that where an employment agreement does not comply, the minimum entitlements provided under the legislation will apply. 

Remediation process for outstanding liability 

Unexpectedly, the Bill also proposes a remediation framework to address historic non-compliance under the Holidays Act. 

Under this framework, employers may elect to follow a prescribed process to resolve outstanding liabilities by paying reasonable compensation, with the aim of achieving finality. Notably, the Bill provides that employers may opt into the remediation process without requiring employee consent, and that regulations may set a minimum payment threshold, below which no payment is required - yet the employer is still deemed to have resolved its liability. 

This appears designed to address large-scale remediation challenges, particularly in sectors such as health and education, and represents a significant departure from the remediation approach many employers have previously been required to take. Although we consider this to be a pragmatic approach, it may feel like “too little too late” for many employers who have already had to undertake complex remediation processes.

What employers should be thinking about now

While the Bill still needs to progress through the Parliamentary process and may be amended, Employers should consider what the changes would mean for their business in relation to matters such as:

• payroll system capability and configuration
• the structure and clarity of employment agreements - for example, where template agreements refer to current leave entitlements, it would be prudent to start to include wording to account for a potential change in legislation
• collective bargaining - are there terms that would require amendment to better align with the new legislation?
• internal leave management and record-keeping practices – are your records in a good state to allow for a smooth transition to the new framework?
• remediation processes - are there any outstanding liabilities under the Holidays Act that need to be resolved?  

Early awareness and planning will place employers in a stronger position to adapt as the reform develops.

Get in touch

If you would like to discuss any of the above, or would like help with your submissions, please reach out to one of our experts.

Special thanks to Carolina Muthyala for her assistance in writing this article.