New Employment Leave Act to Replace Holidays Act 2003, Bringing Simpler Rules and Fairer Entitlements

The New Zealand Government has confirmed a landmark reform of workplace leave entitlements, with Cabinet agreeing to repeal and replace the Holidays Act 2003. The new Employment Leave Act is designed to deliver confidence, fairness, and clarity for both employers and employees, according to Workplace Relations and Safety Minister Brooke van Velden.

Van Velden said the reforms mark a turning point for workers and businesses who have long grappled with a complicated, inconsistent, and costly leave framework. “This is a win for workers, a win for businesses, and a win for New Zealand,” she said, highlighting that the changes will address long-standing problems in how leave has been calculated and applied.

Why Reform Was Needed

The current Holidays Act has caused widespread confusion. Employers have struggled to correctly apply the rules, often leading to errors in leave payments. Employees, meanwhile, have faced challenges in understanding what they are entitled to. This complexity has resulted in billions of dollars in remediation payments across multiple industries.

“The problems with the Act have been well canvassed over the years,” said van Velden. “It has cost billions in large-scale remediation payments. Employers struggle to understand and apply the law correctly, while workers often don’t know their rights. It was a broken system.”

Key Features of the Employment Leave Act

The new legislation introduces a simpler, more flexible, and transparent framework. Key changes include:

• Hours-based accrual for sick and annual leave: Workers will earn leave directly in proportion to hours worked. This means part-time and casual employees will no longer be disadvantaged, and leave can be taken in hours rather than whole days.

• Pro-rata sick leave: Entitlements will now fairly reflect the actual hours worked, creating equity between full-time and part-time staff.

• Leave Compensation Payment for casual workers: Casual employees will receive an upfront 12.5% payment for every hour worked, compared to the current 8% “pay-as-you-go” system. This represents a pay boost while removing the complexity of tracking leave balances.

• Compensation for additional hours worked: Any hours worked beyond contracted hours will not accrue traditional leave, but workers will instead receive a 12.5% upfront payment.

• Parental leave improvements: Parents returning from parental leave will now receive their full pay when taking annual leave, eliminating the penalty of reduced income faced under the old rules.

• Bereavement and family violence leave: These entitlements will be available from the first day of employment, ensuring immediate support for workers in crisis.

• Mandatory pay statements: Employers must provide clear and transparent pay slips, detailing pay and leave entitlements each pay period.

• Flexibility in cashing up annual leave: Employees will be able to cash up 25% of their annual leave balance each year, compared to the current limit of just one week. Employers benefit by reducing leave liabilities.

• Streamlined payment method: A single, simplified method will apply to all leave types, ending the era of multiple confusing calculations.

Who Benefits Most

The Minister emphasised that while most employees’ entitlements will remain broadly the same, two groups will see significant improvements:

• Parents: Families will benefit from fairer treatment when transitioning back from parental leave, with no loss in income when annual leave is taken.

• Casual workers: Instead of storing leave entitlements—which is often impractical given the irregular nature of their work—they will receive immediate pay boosts recognising their entitlements.

“These reforms recognise the unique challenges faced by casual workers and parents,” van Velden said. “For casuals, leave payments will be simpler and predictable. For parents, we are making sure family responsibilities don’t lead to lower pay.”

Implementation Timeline

The Employment Leave Bill is expected to pass within this parliamentary term. Once enacted, a 24-month implementation period will follow to allow employers, payroll providers, and workers time to adapt to the new system.

Van Velden confirmed that her earlier ambition, announced in December 2024, to have the Act passed before the end of term remains on track.

A Balanced Reform

The reforms are positioned as fair to both workers and businesses. Employees will gain clarity, flexibility, and in some cases increased entitlements. Employers, on the other hand, will benefit from reduced complexity, predictable liabilities, and a system that is easier to administer.

“All workers, businesses, and their families will benefit from leave payments being simpler and more predictable, with greater transparency and certainty,” van Velden concluded.