The Government has confirmed its intention to reform New Zealand’s leave system, with Cabinet agreeing to repeal the Holidays Act and replace it with the Employment Leave Act.
The Holidays Act has been criticised for years as overly complex, resulting in costly remediation payments for employers and confusion for employees about their entitlements. The proposed new law aims to simplify the framework, reduce compliance risks and ensure clarity for both employers and workers.
Proposed Changes
While a Bill is yet to be drafted, the following changes are proposed:
Annual Leave Accrual
- Leave will accrue from day one at 0.0769 hours for every contracted hour worked.
- Part-time and casual employees will have entitlements that better reflect their work patterns.
- Annual leave can be taken in hours, providing more flexibility for employees.
Sick Leave
- Sick leave will accrue pro rata based on hours worked, capped at 160 hours.
- Sick leave may also be taken in hours.
Leave Compensation
- Casual staff will not accrue leave. Instead they will receive a 12.5% leave compensation payment for every hour worked (increased from the current 8%).
- Additional hours worked beyond contracted hours will also attract the 12.5% top up, with some exceptions for salaried employees whose employment agreements state that they are compensated for additional hours worked.
Parental Leave
- Parents returning from parental leave will now be entitled to their full pay when taking annual leave, addressing longstanding concerns about reduced entitlements on return to work.
Family Violence and Bereavement Leave
- These entitlements will be available from the first day of employment, rather than after six months.
- Leave will remain days-based but can be taken in part days.
Annual Leave Cash-Up
- Employees may cash up to 25% of their annual leave balance each year, with employer agreement, compared to the current cap of one week.
Otherwise Working Days
- A new formula will determine whether a day constitutes an 'otherwise working day’, helping determine whether employees are entitled to certain pay, eg, on public holidays.
Public Holidays
- Employees working on public holidays will receive hours in lieu (rather than a full day), proportionate to hours worked, in addition to time-and-a-half pay.
Pay Transparency
- Employers must provide itemised pay statements each pay period, clearly showing pay and leave entitlements.
Implications
- While overall entitlements remain similar, the way these are calculated will change.
Casual employees will benefit from higher upfront compensation and parents returning from parental leave will no longer face reduced annual leave payments.
Employers stand to gain from simplified compliance, clearer calculations and reduced leave liability through increased cash-up options.
The proposed legislation represents a significant shift toward modernising and simplifying New Zealand’s leave framework. If enacted there will be a 24-month transitional period.
Employers should ensure they remain up-to-date with developments and begin future-proofing employment agreements now, to minimise the need for substantial amendments if and when the legislation is enacted.
Chloe Wilson, Associate
E: Chloe.wilson@swlegal.co.nz
STEINDLE WILLIAMS LEGAL, Level 2, Suite 2.1, 18 Sale Street, T: 09 361 5563, www.swlegal.co.nz
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