Introducing the Employment Leave Bill: A New Framework for Leave in New Zealand

The Employment Leave Bill represents one of the most significant reforms to New Zealand’s leave legislation in decades. It replaces the Holidays Act 2003 with 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. This has resulted in 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.

This article provides a clear, high-level overview of the key concepts introduced by the Bill. It is intended as an introduction only, with deeper technical and payroll implications to be explored in future content.

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 replaces complexity with clarity by:

• Defining work more precisely
• Linking leave directly to hours worked
• Standardising payment through the ordinary hourly rate
• Simplifying 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 simpler, more transparent, and far more aligned with modern work practices.