Having just passed its first reading, the Government’s new Employment Leave Bill proposes a complete overhaul of New Zealand’s leave system, repealing and replacing the Holidays Act 2003. While the Bill aims to deliver clarity and consistency after years of complexity and widespread non‑compliance, the scale of change invites a myriad of questions about its practicality, impact, and the real‑world consequences for employers and workers alike.

A Structural Shift

At the heart of the proposed Bill is a new system that categorises hours into three types:

  • Standard hours, which are the hours an employee is required to work under their employment agreement and for which their employer must pay them;
  • Additional hours, which are hours an employee works over and above their standard hours (and if the agreement provides for it); and
  • Casual hours, which are hours worked by an employee but do not require their employer to offer any work, nor for them to accept it (exclusive from standard hours).

This shift is intended to improve transparency in how leave is accrued and paid.

Critically, however, this model would require employers to examine fundamental aspects of their employment agreements, rostering practices, and payroll configurations. For businesses with diverse or irregular workforces like hospitality, retail, and healthcare, the proposed definitions may introduce uncertainties, particularly where “standard hours” are not easily defined or consistently worked.

Leave Entitlements: finally some clarity or yet more complexity?

The Bill seeks to replace day‑based entitlements with an hourly accrual system for most forms of leave.

Key proposed entitlements include:

  • Annual leave accruing from day one at 0.0769 hours per standard hour worked.
  • Sick leave accruing from day one at 0.0385 hours per standard hour, capped at 160 hours.
  • Bereavement and family violence leave shifting to having the entitlement from day one and allowing part‑days.
  • A new otherwise working day (OWD) test tied to the previous 13 weeks of work patterns.
  • Alternative holidays earned hour‑for‑hour when employees work on a public holiday that is an OWD.

These proposed reforms address long‑criticised features of the current Act, particularly ambiguity around variable hours and striving to introduce some consistency across leave legislation.

However, the potential shift to hourly accrual models raises issues of its own.
Employers will need to collect and capture accurate, granular data on “standard hours,” especially where employees’ agreements do not align neatly with real‑world working patterns. For employees, the move to hour‑based leave may make entitlements feel less intuitive, particularly where they have been accustomed to day‑based systems.

Simplifying Leave Payments but at what cost?

The Bill proposes one hourly rate for all forms of leave and removes the need for multiple calculations such as average weekly pay versus ordinary weekly pay. This is intended to reduce payroll errors and compliance costs.

A key feature is the 12.5% leave compensation payment (LCP), paid on all additional and casual hours instead of accruing annual or sick leave on those hours.

While attractive for simplicity, the LCP model has trade-offs:

  • For employees regularly working additional hours, the LCP may be less valuable than accruing leave. A 12.5% payment may not always equate to the value of taking paid time off.
  • Employers may face pressure to explain or justify when hours are treated as “additional” rather than “standard,” especially where this affects overall leave entitlement.
  • There is a risk that widespread use of “additional” hours could, over time, undermine the stability of leave accrual for workers with fluctuating roles.

A salaried employee is not entitled to receive an LCP for hours that an employment agreement expressly states are included within their salary, even if hours are ‘additional’. This is because those extra hours are not treated as “additional hours” for the purposes of the LCP regime.

Transfer of leave entitlements where a business is sold

The Bill addresses leave management where an employee elects to transfer to a new employer as part of a restructuring process. Currently the original employer is required to pay out the employee’s annual leave accruals at the transfer date.

The Bill proposes Part 6A of the Employment Relations Act 2000 is amended so that employment is considered continuous and all leave accrued transfers to the new employer. This includes annual leave, sick leave, bereavement leave, family violence leave, and alternative holidays. An employee’s service with the old employer will also be recognised as service with the new employer for the purpose of parental leave entitlements.

Implementation Challenges and Sector Impacts

Most of the Bill would come into force two years after Royal assent, with the schooling sector receiving a significantly longer ten‑year transition period. While the extended lead‑in acknowledges the scale of change, it also indicates just how extensive and disruptive the reforms may be.

The Bill sets out transitional rules and a framework for remediation of past non‑compliance. But without clear guidance, the remediation process may create additional uncertainty—particularly for employers already grappling with historic Holidays Act issues.

Promising but potentially punishing

The Employment Leave Bill offers a bold attempt to deliver simplicity, consistency, and fairness in an area that has long challenged employers and payroll systems. The intention is clear: fewer calculations, fewer mistakes, and more predictable entitlements.

Yet the success of the reforms will hinge on:

  • How clearly “standard hours” can be defined in practice.
  • Whether payroll systems can adapt without significant cost.
  • How employers manage the shift from day‑based to hour‑based leave.
  • The fairness and sufficiency of the LCP for employees working beyond standard hours.
  • The clarity of guidance that accompanies implementation.

While the Bill aims to resolve long‑standing problems with the Holidays Act, it introduces a new set of complexities that will require careful navigation across nearly every sector of the economy.  As the Bill now heads off to the Select Committee stage, we will continue to track its progress carefully.

For more information

If you or your organisation need advice on any aspect of employment law and/or this latest update, please do not hesitate to reach out. For more information, contact 04 472 0020 or one of our employment law experts.

Tess von Dadelszen | 027 233 3895 | 04 495 8920 | tess.vondadelszen@jbmorrison.com

Angela Williams | 021 284 3366 | 04 978 8136 | angela.williams@jbmorrison.com

Sam McGuire | samuel.mcguire@jbmorrison.com