What the proposed Employment Leave Act could mean for you

The Holidays Act 2003 has long been criticised for its complexity. Employers have struggled to apply it correctly, employees have found it difficult to understand their entitlements, and businesses across New Zealand have faced costly remediation projects as a result.

The Government has now announced plans to repeal the Act and introduce a new Employment Leave Bill which it hopes to pass into law before the end of the current parliamentary term. The aim is to simplify calculations, reduce errors, and provide greater clarity for both employers and employees.

Should this Bill be passed into law, the government has signalled that employers will have a 24-month implementation period to adjust to the new settings.

The proposal introduces several significant shifts to how leave is managed in New Zealand workplaces.

Annual and sick leave will accrue based on the employee’s contracted hours of work from day one, rather than provided as a lump sum entitlement after a term of continuous employment. Employees will be able to take sick leave in hours rather than days providing greater flexibility. This approach is designed to create a clearer link between the time worked and leave earned, making calculations more consistent across different working arrangements.

Part-time staff will no longer automatically receive 10 days of sick leave after six months of employment. Instead, their entitlement will accrue based on their contracted hours worked. For example, someone working two days a week will receive the equivalent of around four days per year. This change means entitlements are more closely aligned with working hours, although it will result in fewer sick leave hours for employees working reduced schedules compared to current settings.

Casual employees will not accrue annual or sick leave. Instead, they will receive a Leave Compensation Payment of 12.5% on top of their hourly pay, an increase from the current 8% “pay as you go” rate. The same payment will apply to any hours worked (and paid for) that are in addition to an employee’s contracted hours of work. This payment is designed to provide an immediate cash value to the employee in lieu of the ability to take time off in the future.

Employees returning from parental leave will have their annual leave paid at their normal pay rate, rather than being reduced because of time away from the workplace. This means employees will not be financially disadvantaged if leave needs to be taken soon after returning to work after a period of parental leave.

Both bereavement leave and family violence leave will be available from the first day of employment. This change will provide immediate support for employees facing unexpected or urgent situations.

Employers will be required to provide itemised pay statements each pay period. These statements will set out pay and leave details clearly, helping employees understand how their entitlements are being calculated.

Employees will be able to cash up to 25% of their annual leave balance as at their last employment anniversary, compared with the current option of one week for each entitlement year. This gives employees more flexibility to convert leave into pay if they choose.

The proposal introduces a single method of calculating leave payments, applying across all leave types. This is intended to remove the complexity of applying different calculation methods depending on the type of leave taken.

While the Government has positioned the changes as a win for both businesses and workers, the announcement has prompted a mix of positive reactions and concerns. Supporters see the proposals as a step toward greater clarity and consistency, while others have highlighted areas where employees or employers could be disadvantaged.

The shift to pro-rata sick leave has been one of the most debated aspects. Critics argue that reducing entitlements based on hours worked disproportionately affects part-time employees. Opponents highlight that illness does not occur on a “pro-rated schedule,” and that some workers may not have enough sick leave when they need it most.

For casual employees, the increase to a 12.5% Leave Compensation Payment is intended to simplify matters. However, critics say it places the burden of financial planning onto workers themselves, who will need to budget for time off. For people living pay-to-pay, setting this money aside may not be realistic.

Currently, bonuses and commissions are included in the calculation for annual leave pay. Under the new law, annual leave would be calculated based solely on base salary unless an alternative arrangement is agreed. This could leave some workers worse off when they take leave then under the current settings.

Employers and payroll providers will have 24 months to implement the new system once the law passes. Some organisations, such as the Ministry of Education, have warned that this timeline may be too short. They estimate it could take up to 10 years to adapt systems fully, highlighting the scale of the challenge for large, complex organisations.

At this stage, the Employment Leave Bill is still a proposal only and draft legislation has yet to be introduced to Parliament.  Even once passed, the two-year transition period means businesses have time to prepare.  Until such time that the Bill is enacted, it is important that employers continue to meet their obligations under the existing Holidays Act. 

Leave entitlements are one of the most complex areas of payroll. With these proposed reforms, staying compliant will require close attention to detail and reliable payroll systems.

At Smartly, compliance has always been at the heart of what we do. We are closely monitoring the proposed Employment Leave Bill and will ensure our systems are fully updated in line with the new legislation should these proposals be enacted. For our customers, that means you can be confident your payroll will remain accurate, compliant, and stress-free.

The Employment Leave Bill is yet to be introduced to Parliament, and the details may still evolve. What’s clear is that the reform is designed to address long-standing issues with the Holidays Act, while also reshaping how leave works for part-time, casual, and commission-based employees.

We’ll continue to keep you updated as more information becomes available. Once the law is finalised, we’ll provide clear guidance on what it means for your business and your employees.

For now, the most important step is awareness - knowing that change is coming, understanding the key points of discussion, and being assured that Smartly will help you navigate the transition smoothly.