After years of confusion and costly payroll errors, New Zealand's Holidays Act is set for its biggest overhaul in more than 20 years.
The Government has introduced the Employment Leave Bill, which will replace the current Holidays Act 2003 with a simpler, hours-based system. While the new legislation has not yet come into force, employers should start familiarising themselves with the proposed changes, as they will affect virtually every business with employees.
What are the key changes?
Leave will accrue from day one
Instead of employees becoming entitled to annual leave after 12 months of employment, annual leave and sick leave will begin accruing from their very first day of work.
Leave will be measured in hours
One of the biggest changes is moving away from weeks and days.
Under the proposed system, leave will accrue and be taken in hours, making calculations much simpler for:
- Part-time employees
- Employees with variable hours
- Shift workers
- Employees working flexible schedules
This should remove many of the complicated calculations employers currently face.
Simpler holiday pay calculations
The current Holidays Act requires employers to compare different payment methods, including ordinary weekly pay and average weekly earnings.
The new framework proposes a much simpler approach using hourly calculations, reducing the complexity that has caused payroll errors for many businesses.
Additional and casual hours
Where employees work genuinely casual hours or hours in addition to their contracted hours, those hours generally won't accrue leave. Instead, employers will pay a 12.5% Leave Compensation Payment for those hours.
This replaces the current 8% holiday pay approach used for many casual employees
Public holidays
The Bill also introduces a clearer test for determining whether a public holiday would otherwise have been a working day for an employee. This is intended to reduce disputes, particularly for employees who work irregular or changing rosters.
Annual leave cash-ups
Employees will be able to request to cash up, up to 25% of their accrued annual leave balance every 12 months, subject to employer agreement. This replaces the current “one week” cash-up rule and aligns with the new hours-based system.
When do the changes take effect?
The new leave system will include a 24-month implementation period following Royal Assent, giving employers time to update payroll systems, employment agreements and internal processes.
While there is time to prepare, employers should start familiarising themselves with the proposed changes now to ensure they’re ready well before the new rules take effect.
Need help?
With significant changes on the horizon, now is a great time to review your payroll processes and ensure you're prepared. If you have any questions or would like advice tailored to your business, our team is here to help.