Leave Accrual During Parental Leave

Employees on parental leave will remain entitled to annual leave as is the case presently,
however, instead of becoming entitled to 4 weeks of annual leave on their anniversary date,
they will accrue leave based on standard working hours.

Under the proposed legislation, leave will accrue at a minimum rate of:

          | 0.0769 hours for every standard hour worked

The key question is how “standard hours” are defined for an employee who is not currently
working. The Bill introduces a clear answer.

How Standard Hours Will Be Determined

The employee’s leave accrual will be based on the standard hours they worked before commencing parental leave.

This means:

• If an employee had consistent standard hours before taking parental leave, those hours will continue to be used to calculate leave accrual while they are away.
• Employees will continue accruing leave even though they are not physically working during their parental leave period.

This change ensures continuity and prevents employees from being disadvantaged simply because they are temporarily absent from the workplace while caring for a child.

Temporary Changes to Standard Hours Before Parental Leave

The Bill also addresses a specific scenario: what happens when an employee temporarily changes their working hours shortly before commencing parental leave.

Without a rule to address this, short-term changes to hours could unfairly skew leave calculations in either direction. The Bill closes that gap.

When a Temporary Change Applies

A temporary change is defined as:

• an increase or decrease in standard hours; and
• a change that remains in place for no longer than three months.

If an employee and employer agree to a temporary change to standard hours within the three months before parental leave begins, the leave accrual calculation will instead be based on the employee’s standard hours immediately before the temporary change commenced.

Why This Matters

This provision prevents short-term adjustments to work hours from unfairly affecting leave entitlements.

For example:

• An employee who temporarily reduces hours due to pregnancy-related circumstances will not have their future leave accrual unfairly reduced.
• Likewise, an employee temporarily increasing hours shortly before parental leave will not artificially inflate leave calculations.

The intention is to ensure leave accrual reflects the employee’s genuine long-term working arrangement.

Amendments to the Parental Leave and Employment Protection Act 1987

Clauses 184 to 188 of the Employment Leave Bill introduce several amendments to the Parental Leave and Employment Protection Act 1987. These amendments primarily focus on correcting long-standing issues surrounding holiday pay and parental leave payments.

The most significant of these is the removal of a calculation method that, in some circumstances, has resulted in employees receiving no holiday pay at all after returning from parental leave.

Removal of Outdated Holiday Pay Provisions

Changes Under Section 184

Section 184 amends section 42 of the Parental Leave and Employment Protection Act by removing the words “and holiday pay.” As a result, the section title will now read:

          | Employer’s obligation in respect of remuneration

In addition, section 42(2) will be repealed. This subsection previously required holiday pay to be calculated using the employee’s average weekly earnings.

Why the Existing Rules Created Problems

The existing calculation method often produced unfairly low holiday pay rates for employees returning from parental leave. This occurred because employees on parental leave typically have:

• little or no gross earnings during the previous 6 to 12 months; and
• reduced average weekly earnings as a result.

Consequently, employees taking annual leave shortly after returning to work could receive significantly reduced holiday pay

In Some Cases, the Rate Could Be Zero

The problem was particularly severe for employees returning after 12 months of parental leave. If annual leave was taken during the first pay period after returning to work, the employee’s average weekly earnings could potentially be calculated at a rate of zero.

This meant an employee could effectively receive no holiday pay despite returning to active employment. This is the kind of outcome the Bill is designed to prevent.

The New Protection for Returning Employees

The Employment Leave Bill addresses this issue by ensuring employees returning from parental leave are paid at least their base rate of pay for annual leave taken after their return. This amendment creates a fairer outcome and removes the risk of employees being financially disadvantaged immediately after parental leave. The same protection will also apply to holiday pay paid while an employee is on parental leave

Repeal of Section 72

Section 187 of the Employment Leave Bill repeals section 72 of the Parental Leave Act. This repeal aligns with the broader intention of removing outdated holiday pay rules that have created confusion and inconsistent outcomes for both employers and employees.

Changes to the Calculation of Parental Leave Payments

Another major reform relates to how parental leave payments themselves are calculated. It is important to note that this refers to Paid Parental Leave, which is managed by IRD. The changes here relate to how IRD will calculate the amount of the payment due to employees on paid parental leave.

Because the comparison is based on actual earnings prior to the commencement of paid parental leave, it is important for employers to pay employees correctly for the hours worked before paid parental leave begins. Errors in that period will flow directly into the payment calculation.

Amendment Under Section 186

Section 186 replaces section 71M(1)(b)(i) and updates the method used to determine parental leave payments. Under the new approach, parental leave payments will be paid at the lesser of:

• $788.66 (the current paid parental leave payment); or
• the greater of: the employee’s ordinary weekly pay; or the average of the employee’s gross weekly earnings from all employments.

A More Accurate Earnings Assessment

The revised calculation method focuses on 100% of the employee’s weekly earnings before parental leave commenced. Importantly, it also considers earnings across all employments, rather than limiting calculations to a single role.

This change is particularly beneficial for employees who:

• work multiple jobs;
• have variable income arrangements; or
• receive fluctuating earnings.

The goal is to create a more accurate reflection of an employee’s normal earnings before taking parental leave.

New Definition of Relevant Pay Periods

The Bill also introduces clear rules for determining which pay periods are used to calculate parental leave payments. These pay periods vary depending on how the employee is paid

Implementation Date and Employer Readiness

The new parental leave provisions are scheduled to take effect for any parental leave period beginning on or after 1 July 2027.

This commencement date differs from many other parts of the Employment Leave Bill, which are expected to come into force two years after Royal Assent. As a result, employers may have a much shorter timeframe to prepare for these particular changes.

That distinction is worth dwelling on. While much of the Employment Leave Bill conversation has focused on the two-year post-Royal Assent window, the parental leave changes operate on their own schedule. Organisations that assume they have the same preparation runway for all parts of the Bill may find themselves under-prepared for this section specifically.

What Employers Will Need to Review

If the Employment Leave Bill becomes law, employers will need to review and potentially update:

• payroll systems;
• leave calculation processes;
• parental leave policies;
• employment agreements; and
• HR administration procedures.

Because the changes affect both leave accrual and payment calculations, businesses will need to ensure their systems can accurately process the new rules before the commencement date. Early preparation will help employers avoid compliance issues and ensure employees receive their correct entitlements under the new legislation. (refer to our previous article: Employment Leave Bill: What You Can Do Now)

What These Changes Mean in Practice

The parental leave changes in the Employment Leave Bill are, at their core, about fairness. They close gaps that have existed for years: employees losing leave accrual while absent, employees receiving reduced or zero holiday pay on return, and payment calculations that do not reflect what an employee actually earns.

For employers, the technical implications are real. Payroll systems will need to handle new accrual logic, a revised holiday pay method, and updated payment calculations. Employment agreements and parental leave policies will need to be reviewed against the new framework.

The Bill has not yet passed into law. But the direction is clear, and the 1 July 2027 date for parental leave provisions gives less lead time than many organisations may expect.

Understanding what is proposed is the first step. The next is assessing what it means for your specific systems, agreements, and workforce.

If you would like to discuss how these changes affect your organisation, our team is available to help.

Get in touch with Alxemy

Managed payroll vs payroll software is one of the most consequential decisions a New Zealand business leader will make, and yet it rarely gets the strategic attention it deserves.

For most New Zealand employers, payroll is far more than an administrative checkbox. It is the mechanism through which you honour your commitment to your people. Get it right, and it runs invisibly in the background. Get it wrong, and the consequences can be swift and serious: financial penalties, IRD scrutiny, and damaged employee trust.

As your business grows, the question becomes unavoidable:

Should payroll be managed internally with software or supported by an experienced payroll partner?

There is no universal answer. The right model depends on your workforce size and complexity, your internal capability, your appetite for compliance risk, and the level of expert support you need when things get complicated.

Here are three practical payroll models New Zealand businesses should consider, and the honest trade-offs that come with each.

Option 1: In-House Payroll Software, For Businesses That Want Full Control

Payroll software is often the first choice for businesses that want to keep payroll processing firmly in-house.

Under this model, your internal team takes ownership of the full payroll cycle: entering hours and wage data, reviewing and approving pay runs, submitting payday filing to Inland Revenue, managing PAYE, KiwiSaver, and ESCT deductions, processing authorised employee deductions, and completing year-end reconciliations.

Best For

Smaller businesses with straightforward payroll structures and a capable internal administrator who understands New Zealand tax and employment law.

What Works Well

Managing payroll internally using software gives your organisation direct control over payroll timing, approvals, and internal processes. It can be cost-effective initially and typically includes employee self-service functionality, allowing staff to access payslips and update personal details without HR involvement.

What to Watch Out For

Software is a tool, not a substitute for expertise.

Someone internally must stay current with PAYE and payday filing obligations, KiwiSaver and ESCT requirements, Holidays Act interpretation, and ongoing regulatory changes. System upgrades and configuration changes require continued investment and oversight.

In New Zealand, employers carry full responsibility for accurate deductions and timely Inland Revenue reporting. Misconfiguration or misinterpretation, even when unintentional, can result in penalties, financial exposure, and reputational damage.

IRD guidance for employers managing payroll tax obligations: ird.govt.nz/employing-staff/paying-staff

Option 2: Managed Payroll Services, For Businesses That Value Expert Support

Managed payroll services mean partnering with a professional payroll provider who manages your payroll processing on your behalf.

Rather than relying on software alone, you gain access to a dedicated payroll team that runs your pay cycles, manages PAYE and statutory filing, provides compliance guidance, supports employee onboarding and contract changes, and is available to resolve issues and answer complex questions as they arise.

Best For

Businesses that prioritise operational continuity, reduced internal pressure, and access to experienced payroll professionals who know the New Zealand compliance landscape inside-out.

What Works Well

Managed payroll services reduce compliance exposure and ease the administrative burden on your internal team. They provide structured processes, professional oversight, and access to knowledgeable specialists when complex or sensitive situations arise. This gives you greater confidence that payroll obligations are being met accurately and consistently.

What to Watch Out For

The quality of managed payroll services depends entirely on the provider’s delivery model.

Some large-scale providers operate with highly standardised processes designed for efficiency at volume. While this can create operational consistency, it can also result in a service experience that feels impersonal and transactional.

A common pattern: senior expertise is visible during onboarding, but day-to-day processing is later handed to junior or high-volume teams. Over time, this can introduce consistency risks, particularly where payroll requires professional judgement, legislative interpretation, or careful handling of complex exceptions.

New Zealand payroll is not simple. It involves nuanced application of employment legislation, Holidays Act interpretation, and the management of variable workforce structures. Without experienced oversight embedded throughout the operational layer, not just available as an escalation path, errors can accumulate quietly within repetitive processing environments.

When evaluating managed payroll providers, look beyond cost and response times. Ask how senior expertise is integrated across the full payroll lifecycle, not just at the point of sale.

Option 3: Hybrid Payroll, Software Plus Local Expertise

Many growing businesses settle on a hybrid approach: modern payroll technology supported by experienced payroll professionals.

Under this model, you benefit from the efficiency and automation of a contemporary payroll platform, while still having access to real people who can provide guidance, oversight, and practical advice when questions arise or complexity increases. Local service and responsive expertise are particularly valuable when regulatory interpretation or operational judgement is required.

Best For

Businesses scaling rapidly that want to retain visibility and internal control, while managing more complex payroll environments. This includes businesses with multiple pay types, a mix of hourly and salaried employees, integrated time and attendance systems, or structured allowance administration.

What Works Well

The hybrid model balances technology-driven efficiency with human expertise. It is well-suited to businesses that are outgrowing a purely DIY approach but are not yet ready or willing to hand over full payroll management to an external provider.

What to Watch Out For

Under a hybrid model, your business typically remains the system owner. That means ongoing responsibility for software licensing, configuration integrity, security settings, and upgrade management. All of which require continued attention as your business grows and legislation evolves.

Payroll platforms are developing rapidly, particularly with the acceleration of AI-enabled functionality. Rather than viewing this as a risk, the key is ensuring you have the right support in place to make the most of your investment, both now and as the platform matures.

This is where Alxemy’s approach is different. We do not simply manage your payroll and step away. Our team can work alongside you to support system configuration, manage upgrades, and ensure your platform continues to perform accurately as regulatory requirements change. You get the efficiency of modern payroll technology and the reassurance of experienced professionals who know how to keep it running at its best.

For businesses that have made a significant investment in payroll software, this kind of ongoing partnership means your system remains an asset, not a liability.

Short answer: yes, and not just for the reasons you might think. Fiscal year end is the moment where delivery, funding, governance, and strategy all collide, and where the value of a strong PMO becomes impossible to ignore. Miss it, and the cost is not just a difficult close. It is a slower, harder start to the year that follows.

Identify Standard Working Hours for Your Employees

$109 million lost for every $1 billion invested in projects due to poor performance. That is the reality, according to PMI. And 65% of projects fail to meet their original goals.

These are not abstract statistics. They are the result of pressure points that compound over time — and fiscal year end is the biggest one.

It is the moment when every structural weakness in your delivery environment becomes visible at the same time. Decisions get made with incomplete information. Work gets stopped or continued for the wrong reasons. Teams absorb pressure that carries directly into the year ahead.

The organisations that come through it well are not the ones with the most resources. They are the ones with the clearest data, the strongest governance, and a delivery environment built to hold under pressure.

Funding Drives Decisions and Someone Needs to Make Sense of It

Are you getting value from what you are spending?

At fiscal year end, that question gets asked at every level of the organisation. Unused funds may be lost. Overspend gets questioned. New initiatives depend on funding that is yet to be approved.

If no one can answer clearly, decisions default to assumption. Money flows out, work continues, and the organisation moves into the next year without knowing what it got for its investment.

A PMO changes that by:

• Aligning spend to real delivery progress, not estimates or percentage complete figures
• Providing accurate forecasting so there are no surprises in the final quarter
• Tying funding to outcomes that can be clearly articulated and defended

The result is an organisation that closes the year with confidence rather than questions.

The Biggest Decisions of the Year Happen Here

Only 55% of organisations have access to real-time KPIs, according to Wellingtone. The rest are making critical portfolio decisions without reliable data.

At fiscal year end, that gap is most expensive. This is when organisations decide what to stop, what to continue, and what to invest in next. These are the most consequential decisions of the year and they should be driven by evidence, not instinct.

When performance data is incomplete or arrives too late, decisions get made based on habit or whoever makes the loudest case. Work that should stop continues. Opportunities that deserve investment get overlooked.

A PMO gives every leader access to the same reliable portfolio data, turning fiscal year end decision-making from a political exercise into a strategic one.

Reporting Under Pressure Reveals What Is Actually Working

Picture this. It is the final weeks of the financial year. Leadership needs a consolidated view of delivery performance across every programme. Finance needs numbers that reconcile with what is in the system. The board wants to know what was delivered against what was promised.

And 50% of project teams spend one or more days per week manually pulling together reports instead of delivering. That figure comes from Workamajig, and it is more common than most organisations want to admit.

Inconsistent reporting does not just slow things down. It erodes confidence in the data. And without confidence in the data, decisions slow down or get made without the information they need.

A PMO maintains reporting standards as a year-round discipline, so when fiscal year end arrives, the data is already there, already clean, and already ready.

A Honest Note on PMO Value

Not every PMO delivers on its promise. Executives who have lived through a PMO that added process without adding value will recognise this tension immediately, and they are right to.

A PMO that generates reporting for the sake of reporting, or enforces governance that slows delivery down without improving outcomes, is not a strategic asset. It is overhead.

The question is not whether you have a PMO. It is whether your PMO is structured to deliver visibility and control that actually changes decisions.

At fiscal year end, that distinction becomes clear very quickly. The organisations that come through it well have a PMO that is embedded in delivery, not layered on top of it.

Delivery Risk Is Highest When Capacity Is Lowest

Here is what fiscal year end looks like when it goes wrong.

Milestones get accelerated to meet year end targets. Teams are pulled across multiple priorities at the same time. Business-as-usual demands spike. Key people are stretched beyond capacity.

Then the delays start. Quality drops. Issues that should have been caught early surface too late to resolve cleanly. And the problems that emerge in the final quarter carry directly into the following year, compounding pressure on a team that never had time to recover.

Active risk management and capacity balancing across the portfolio is not a nice-to-have at this point. It is the difference between a team that arrives at the new year ready to deliver and one that is already behind.

How You Close the Year Shapes How You Start the Next One

A clean close looks like this: Clear outcomes documented. Issues resolved or formally transitioned. Priorities set for the year ahead. Governance in place before day one of the new financial year. Teams that know exactly what they are working on and why.

A messy close looks like this: Unresolved issues carried over with no clear owner. Priorities still being debated weeks into the new year. Teams starting behind because last year never properly finished.

High-performing organisations with proven project management practices meet their original goals 2.5 times more often than those without, according to PMI. That gap does not happen by accident. It is the result of structure and discipline that starts well before fiscal year end and carries through it cleanly.

What This Means for Your Organisation

Fiscal year end is not a checkpoint. It is a defining moment for any organisation running complex programmes and projects.

The organisations that come through it well are not the ones with the most resources. They are the ones with the clearest data, the strongest governance, and a delivery environment that gives every leader the visibility they need to make the right calls at the right time.

The difference between a controlled close and a costly one is not luck. It is structure.

Frequently Asked Questions

The Employment Leave Bill is making its way through Parliament and, while it has not yet passed into law by receiving Royal Assent, there are practical steps organisations can take now to prepare.

Taking action early can help ensure the right foundations are in place should the Bill become law, reducing the risk of rushed decisions, system disruption, and compliance challenges later.

This article outlines some of the key actions employers can take now to assess readiness and begin planning for change.

Identify Standard Working Hours for Your Employees

The basis of the Employment Leave Bill is that leave is accrued based on standard working hours.

These are defined as the hours an employee is required to work under their employment agreement and for which the employer must pay them. Leave accrual continues during periods of paid leave, parental leave, volunteer leave, and jury leave, but not during periods of unpaid leave.

If there are no standard hours, the employee and employer can agree on a notional roster.

What to do now: Start looking at your rosters. Identify where hours may need to be further defined, or where a notional roster may be needed.

Identify Additional Hours

Additional hours are hours worked over and above an employee’s standard hours.

This is where the agreement of standard working hours becomes important. Hours worked above standard will need to be paid at the base hourly rate plus 12.5%. This rate of pay is referred to as the Leave Compensation Payment (LCP).

An employer and employee can also agree to accrue PAL, Purported Annual Leave. This relates to an employer’s liability where leave is accrued instead of the employee receiving LCP.

Casual Employees

Consider reviewing your casual employees,  are these genuine casuals?

Once the Employment Leave Bill becomes law, casuals will be paid the LCP rate of 12.5% on worked hours, rather than the current 8%. Alternatively, casual employees can accrue Purported Annual Leave as above.

Definition of Otherwise Working Day

Currently there is no definition of otherwise working day (OWD) within the Holidays Act. This has resulted in ambiguity around how to determine whether a public holiday was an otherwise working day for an employee.

The Employment Leave Bill sets the determination of OWD as an employee having worked on the same day of the week on at least 50% of the last 13 weeks.

Because there is no current legislation to adhere to regarding OWD, this is one of the few areas where you can configure your system now, and have the determination in place when the Bill becomes law.

What to do now: Check whether your system can automate this. If not, why not?

Parental Leave Changes

The proposed changes to parental leave will be effective for any parental leave applications on or after 1 July 2027.

This is the one change that is not effective two years after Royal Assent, it applies in a shorter timeframe. This means the configuration for parental leave will need to be updated sooner than the rest of the Bill’s provisions, and will need to work alongside the current provisions of the Holidays Act during the two years after Royal Assent.

More Detail Coming: A follow-up article on the details of the parental leave changes is coming soon.

Provision of Pay Statements

Once the new Act is in place, there will be a legislative requirement to provide employees with pay statements.

This has not been in legislation before, but it is considered best practice and most payroll systems already provide payslips. However, with the Bill defining what must appear on a pay statement, it is worth checking what your current payslip includes, and working with your software provider to add anything that is missing now.

Refer to section 130A of the Bill for the full requirements.

Obfuscation of Family Violence Leave

The Bill introduces a change to how family violence leave is recorded on pay statements.

Many organisations already obfuscate the term on payslips, but this will now be legislated. Family violence leave will need to be recorded as a non-identifiable component of the employee’s pay.

What to do now: If your system is not already doing this, now is a good time to make the change.

Remediation Under the Holidays Act 2003

Schedule 3 of the Employment Leave Bill makes provisions for a remediation process under the Holidays Act.

This means that if the Employment Leave Bill becomes law, employers cannot avoid their obligations under the Holidays Act 2003 while waiting for the Employment Leave Act to come into effect. If your system is not currently compliant with the Holidays Act, that still needs to be addressed now.

The Employment Leave Bill becoming law will not protect you from a future remediation process.

And yes, once you have addressed your Holidays Act compliance, you will then need to change again when the Employment Leave Act comes into force. However, the Employment Leave Bill does detail the calculations required to convert weeks and days into hours.

Important: If your system is not already operating in weeks and days, you will be in contravention of this part of the Bill. You will not be starting from the same platform required for the conversion as stated in the Bill.

In Summary

Waiting for the Employment Leave Bill to become law before you act is not a strategy. It is a risk.

The time to get your systems, rosters, and processes in order is now, while you still have the runway to do it properly.

The changes introduced by the Bill are significant. Leave accrual based on standard hours, Leave Cash-up Payment (LCP) on additional hours, a legislated Ordinary Working Day (OWD) test, and parental leave changes effective from 1 July 2027 all carry system, process, and people implications that take time to work through.

For organisations carrying Holidays Act non-compliance into this transition, the stakes are even higher. The Bill makes it clear that past obligations remain. Remediation is not optional, and the Employment Leave Act coming into force will not change that.

The organisations that navigate this transition well will be those that start early, stay informed, and treat preparation as an ongoing discipline rather than a last-minute project.

If you have not yet read Article 1: Holidays Act 2003 vs Employment Leave Bill: What Is Actually Changing, start there for a grounding in the key reforms.

In Article 3 of this series, we will take a closer look at the proposed parental leave changes and what they may mean for employers, payroll teams, and employees.

Ready to prepare your organisation for the Employment Leave Bill? Talk to Alxemy today.

This Is a Programme, Not a Patch

Here is the reality that many organisations are not yet facing: the Employment Leave Bill is not a payroll update. It is a programme. And if you treat it like a payroll update, you will underestimate the scope, underresource the delivery, and find yourself managing a compliance crisis rather than a structured transition.

Think about what a mid-sized organisation running 300 employees across full-time, part-time, and casual arrangements is actually dealing with. Your payroll system is currently configured to calculate leave in days and weeks, apply four separate leave pay rate methods, track annual leave from each employee’s anniversary date, and assess public holiday eligibility using a subjective factors-based test. Every single one of those configurations needs to change, at the same time, in a coordinated way, without disrupting payroll runs for your people.

Beyond system reconfiguration, there is a layer of complexity that many organisations underestimate: converting existing leave balances to hours. This is not a straightforward calculation. Employees may hold balances that were accrued under different entitlement rules, and some will have above-entitlement arrangements defined in their employment agreements, such as an extra week of annual leave or long service leave paid at annual leave rates. How those balances translate under the new framework requires careful analysis, clear rules, and in many cases, legal input. This is work that needs to start well before your system build begins.

That requires project governance. It requires system readiness assessment, stakeholder alignment, vendor engagement, parallel testing, and a structured cutover plan. The organisations that will navigate this well are not necessarily the largest or most technically sophisticated. They are the ones that recognise what this is and resource it accordingly.

Note: The 24-month timeline above reflects a complex implementation. Not every organisation will need the full window. Your timeline will depend on the size of your workforce, the complexity of your employment arrangements, and the readiness of your systems. A readiness assessment will give you a clearer picture of what your transition actually involves.

The Two-Year Window: Why Your Preparation Starts Now

Two years sounds like enough time. It is not. The organisations that assume it is will be the ones scrambling hardest closest to the compliance deadline.

Employment agreements will be one of the most complex areas of this transition. Where unions are involved, change will require negotiation. Some collective agreements run for three years, and some are already in negotiation now. Above-entitlement provisions written into existing agreements will need to be carefully assessed and, in many cases, renegotiated. This is not a quick process, and it carries real risk if left late.

It is important to be clear about what preparation means at this stage. The Bill has not yet passed into law. That means vendors will not commit to detailed development roadmaps, and some system changes cannot be finalised until Royal Assent is confirmed. What you can do now is assess your current state, identify your gaps, open conversations with your vendors, and build the internal structure you will need to move quickly once the legislation is confirmed.

Here is what sits inside that two-year window. Your payroll vendor needs time to rebuild their calculation engine. Your HRIS platform needs to be reconfigured, tested, and validated. Your employment agreements need to be reviewed and updated. Your payroll and HR teams need to be trained on new rules, new processes, and new system logic. And if you run a complex workforce with multiple entities, variable hours, and casual arrangements, your transition will take longer and require more coordination than a simpler structure would.

Start with a readiness assessment before Royal Assent, not after. Understand what your current systems can and cannot do. Engage your vendors while they still have capacity to respond to your priorities rather than manage their backlog. Establish your programme structure in the first three months, not the last three.

The organisations that begin now will have options. They will have influence over their vendor’s roadmap, time to run parallel systems before cutover, and the space to catch errors in testing rather than in a live payroll run. The organisations that wait will have none of those things. The cost of that delay will show up in remediation, in errors, and in the kind of last-minute pressure that puts your people and your compliance at risk.

 What Good Preparation Looks Like

We have sat in enough post-mortems to know what separates a smooth regulatory transition from a painful one. It is rarely about the technology. It is almost never about the legislation being too complex. It comes down to three things consistently: clarity of scope, early stakeholder engagement, and structured delivery governance.

• Clarify your current state first. Before you can plan the transition, you need to understand exactly where you are starting from. Document how your payroll system currently calculates leave, every rule, every configuration, every exception. Include your above-entitlement arrangements and any contractual leave provisions that sit outside the standard framework. This baseline is not optional. Without it, every decision you make about the transition is built on assumptions rather than evidence, and assumptions are expensive to correct mid-programme.
• Engage your vendors before they are busy. Your payroll and HRIS vendors are already working through the implications of the Bill, and they are managing interest from many clients simultaneously. No vendor will publish a detailed development roadmap until the legislation is confirmed, but early conversations matter. They help you understand your vendor’s thinking, signal your organisation’s intent, and position you to act quickly once Royal Assent lands. Vendor capacity is finite. The organisations that have already opened the conversation will be better placed when the build phase begins.
• Build a delivery structure that matches the complexity. This is not a project for one person to carry alongside their regular role. It needs clear ownership, defined workstreams, and regular governance checkpoints. Even a lightweight programme structure, such as a steering group, a fortnightly rhythm, and a simple RAID log, will pay for itself in reduced rework, reduced remediation risk, and a smoother cutover experience than you would otherwise have passes.

In one engagement, we worked alongside a client facing a similarly complex regulatory transition. Within the first month, we embedded a governance framework across their HR, payroll, and technology teams. Within twelve weeks, they had a clear gap analysis, a confirmed vendor roadmap, and a tested implementation plan, well ahead of the compliance deadline and without the last-minute pressure that had defined every previous change programme in their organisation.

The Employment Leave Bill is the same opportunity. Treat it like a programme and you will come out the other side with cleaner systems, more accurate payroll, and genuine delivery confidence.

What Comes Next

This series has covered the key legislative changes, what good preparation looks like in practice, and the detail beneath the surface including how parental leave is handled under the new framework. If the Employment Leave Bill passes into law, the main provisions will come into effect two years after Royal Assent. The changes around parental leave will apply to any parental leave applied for on or after 1 July 2027.

If you are ready to take the next step, we are here to help.

Ready to prepare your organisation for the Employment Leave Bill? Talk to Alxemy today.

The Employment Leave Bill represents one of the most significant reforms to New Zealand’s leave legislation in decades. Replacing the Holidays Act 2003, it introduces a new framework designed to be simpler, clearer, and more consistent across different working arrangements.

For many organisations, the current Holidays Act has proven difficult to interpret and even harder to implement correctly. The result has been widespread compliance issues, costly remediation exercises, and ongoing uncertainty for both employers and employees.

The new bill aims to resolve these challenges by fundamentally rethinking how leave is earned, recorded, and paid. Submissions on the proposed bill closed on 14th April, with hearings starting on 22nd April. However, the Employment Leave Bill is not yet law, and until it is passed, all requirements of the Holidays Act 2003 remain in place. Once enacted, the new law will come into effect two years after Royal Assent, meaning no immediate changes to leave provisions are required. Even so, now is the time to become familiar with the submission, the terms within the bill, and the implications for New Zealand businesses.

In this first article of our series, we provide a clear, high-level overview of the key concepts introduced by the Bill and what they may mean for employers. Future articles will explore the more detailed legal, payroll, systems, and operational implications, along with the practical steps organisations can take to prepare.

Why Reform Was Needed

The Holidays Act 2003 has long struggled to accommodate modern working arrangements such as variable hours, shift work, part-time roles, and complex pay structures. Its reliance on multiple calculation methods has made it difficult to apply consistently, particularly within payroll systems.

As a result:

• Compliance has been inconsistent across industries
• Payroll calculations have become overly complex
• Many organisations have required large-scale remediation
• Employees have not always received correct entitlements

The Employment Leave Bill addresses this by introducing a single, consistent framework that is easier to understand, easier to systemise, and more adaptable to different employment models.

A New Foundation: Types of Working Hours

At the core of the new framework is a fundamental shift in how working time is defined. The bill introduces three distinct categories of hours:

Standard Hours
These are the hours an employee is required to work under their employment agreement and must be paid regardless of whether work is performed.

Additional Hours
These are hours worked beyond standard hours where additional payment applies. They provide flexibility for overtime or extra shifts.

Casual Hours
These apply where there is no obligation for the employer to offer work or for the employee to accept it.

This distinction is critical because leave entitlements now depend on the type of hours worked, rather than applying a one-size-fits-all approach.

Introducing Notional Rosters

For employees whose working patterns are not clearly defined, the bill introduces the concept of a notional roster.

A notional roster is an agreed or determined pattern of work that establishes:

• Expected working days
• Expected working hours
• A baseline for calculating leave

This ensures that even where contracts are unclear or variable, there is still a consistent reference point for entitlements.

Annual Leave: From Weeks to Hours

One of the most significant changes is the move to hour-based leave.

Key Changes:

• Annual leave accrues from day one
• It accrues at a rate of 0.0769 hours per standard hour worked
• Leave is recorded and taken in hours, not weeks
• Balances are not adjusted if standard hours change

Annual leave also continues to accrue during certain paid leave periods (such as parental leave or jury service), but not during unpaid leave or ACC compensation periods.

This shift to hours creates a direct and transparent link between time worked and leave earned, making it far easier to manage for both payroll systems and employees.

Sick Leave: Consistent and Proportionate

Sick leave follows a similar structure:

• Accrues from day one
• Accrues at 0.0385 hours per standard hour worked
• Capped at 160 hours
• Can be used against both standard and additional hours

Unlike annual leave, unused sick leave is not paid out on termination, maintaining its purpose as a health-related entitlement.

The Ordinary Hourly Rate: A Single Basis for All Leave Payments

A central concept introduced by the Bill is the ordinary hourly rate, which underpins how all leave is paid.

In simple terms:

• The ordinary hourly rate represents the employee’s base hourly earnings
• It is used consistently across all leave types
• It replaces multiple calculation methods used under the current Act
• Fixed allowances must continue to be paid during leave

Salaried Employees

For salaried employees, the ordinary hourly rate is effectively derived by converting their salary into an hourly equivalent based on their standard hours.

In practice, this means:

• The employee’s annual salary is divided by their total standard hours over the year
• This creates a consistent hourly rate that is then used for all leave payments

For employees with fixed hours, this is straightforward. For employees whose standard hours vary across pay periods, the rate is still calculated based on their agreed standard hours framework rather than actual hours worked in a given period.

The key point is that the rate reflects what the employee is contractually paid to work, not fluctuations in hours or earnings.

Waged Employees

For waged employees, the ordinary hourly rate is based on their applicable hourly pay rate.

The Bill simplifies this by:

• Using the hourly rate applicable to the work being performed
• In some cases, defaulting to the lowest applicable hourly rate for the day when leave is taken

This avoids the need to:

• Average earnings across multiple periods
• Recalculate based on variable or incentive-based pay

The importance of this concept cannot be overstated. Under the Holidays Act 2003, employers have had to navigate different payment calculations depending on the type of leave, often requiring averaging formulas and retrospective adjustments.

Under the new Bill, the ordinary hourly rate becomes the foundation for:

• Annual leave payments
• Sick leave payments
• Public holiday payments
• Alternative leave payments

This creates a far more predictable and system-friendly model, significantly reducing ambiguity and payroll complexity.

Public Holidays and the “Otherwise Working Day” Test

Public holidays have historically been one of the most complex areas of the Holidays Act. The new Bill introduces a clearer concept:

Otherwise Working Day (OWD)

A public holiday is treated as an entitlement only if it falls on a day the employee would otherwise have worked.

For employees without fixed schedules, a new test applies:

• If the employee has worked 50% or more of the same weekday over the past 13 weeks, it is considered an OWD

This provides a consistent and evidence-based approach to determining entitlement.

Alternative Leave

When an employee works on a public holiday that is an OWD:

• They accrue alternative leave hour-for-hour
• This leave can be taken later
• It can also be cashed up (subject to agreement)

This replaces some of the ambiguity in the current system with a straightforward accrual model.

A Major Shift: Leave Compensation Payments (LCP)

One of the most important new concepts is the Leave Compensation Payment (LCP).

What Is LCP?

Instead of accruing leave for irregular work:

• Employees receive an additional payment of 12.5% of their ordinary hourly rate
• This applies to additional and casual hours

Why This Matters

This removes the complexity of:

• Tracking leave for unpredictable hours
• Applying multiple calculation methods
• Reconciling entitlements for casual or fluctuating work

LCP effectively simplifies irregular work into a pay-as-you-go leave model, which is much easier to administer.

Bereavement and Family Violence Leave

The Bill retains bereavement and family violence leave entitlements but introduces important updates to how they are recorded and administered.

Bereavement Leave

• Entitlements remain broadly similar to the current Act
• Leave is now paid using the ordinary hourly rate
• The number of days available depends on the relationship to the deceased

Family Violence Leave

• Entitlements are retained and remain separate from sick leave
• A key change is how this leave appears on pay statements
• Family violence leave must be recorded as a non-identifiable component of the employee’s pay
• This protects employee privacy and will now be a legislative requirement, not just best practice

Parental Leave: Key Changes on the Horizon

The Bill introduces changes to how parental leave interacts with the new leave framework. These changes are significant and deserve particular attention because they operate on a different timeline to the rest of the Bill.

Key points:

• Parental leave changes take effect for any applications on or after 1 July 2027
• This is earlier than the general two-year transition period after Royal Assent
• Leave continues to accrue during parental leave at the standard rate
• Employers will need to update their systems and configurations ahead of this date

A dedicated follow-up article covering the parental leave changes in detail is coming soon.

Pay Statements: Now a Legislative Requirement

For the first time, the Bill introduces a legislative requirement to provide employees with pay statements.

While most payroll systems already produce payslips, the Bill defines exactly what must be included. Employers will need to review their current payslip outputs and work with their software providers to ensure all required fields are present.

Required information includes (refer to section 130A of the Bill for the full list):

• Hours worked by category (standard, additional, casual)
• Leave balances
• Leave Compensation Payments where applicable
• Any fixed allowances paid
• Non-identifiable components such as family violence leave

Remediation Framework

Recognising the challenges under the Holidays Act, the Bill includes a formal remediation process.

This allows employers to:

• Address historical underpayments
• Apply a structured correction method
• Do so without requiring individual employee agreement

This is a critical component, as many organisations are still working through legacy compliance issues.

Record-Keeping Requirements

The Bill places strong emphasis on record-keeping:

Employers must maintain a leave record that includes:

• Leave balances
• Accruals
• Leave taken
• Payments made

Records must be retained for at least six years and be accessible if requested.

Implementation Timeline

The Bill will not take effect immediately.

• • Most provisions commence two years after Royal Assent
  • The schooling sector has up to ten years to transition
  • Changes to parental leave apply to parental leave taken on or after 1 July 2026

This lead-in period is intentional, allowing:

• Payroll systems to be updated
• Employment agreements to be revised
• Organisations to prepare for the new framework

What this means for Employers

While the Bill simplifies many aspects of leave, it also represents a significant structural change.

Organisations will need to:

• Review employment agreements
• Reconfigure payroll systems
• Revisit leave policies
• Understand new concepts like LCP, OWD, and the ordinary hourly rate
• Prepare for potential remediation

Conclusion

The Employment Leave Bill introduces a fundamentally new way of thinking about leave in New Zealand.

It aims to replace complexity with clarity by:

• Defining work more precisely
• Linking leave directly to hours worked
• Standardising payment through the ordinary hourly rate
• Simplifying the treatment of irregular work

While the detail will take time to fully understand and implement, the direction is clear.

The future of leave management in New Zealand is shaping up to be simpler, more transparent, and better aligned with modern working arrangements.

In the next article in this series, we take a closer look at how the proposed legislation compares to the current Holidays Act 2003, and what is actually changing for employers, payroll teams, and system providers.

Read Article 2: Employment Leave Bill: What You Can Do Now 

Ready to prepare your organisation for the Employment Leave Bill? Talk to Alxemy today.