New Employment Leave Act: Simplified Leave Payments for Employers and Employees

Cabinet has agreed to repeal and replace the Holidays Act 2003 with a new Employment Leave Act giving confidence and certainty to both employers and employees, Workplace Relations and Safety Minister Brooke van Velden announced today.

Full-time and part-time workers will start earning annual and sick leave in direct proportion to the hours they work. Parents returning from parental leave will no longer be penalised with lower pay if they take annual leave, sick leave can be taken in hours to match real life, and employers will finally have certainty with straightforward rules they can understand and apply. This is a win for workers, a win for businesses, and a win for New Zealand, says Ms van Velden.

We’re committed to fixing what matters, in this case we’re taking care of a broken system that has been too complicated for businesses and workers to navigate effectively.

The problems with the Act have been well canvassed over the years costing billions in large-scale remediation payments. Employers struggle to understand and apply the Holidays Act correctly, and employees struggle to understand their entitlements.

Some of the key changes to fix this include: A shift to hours-based accrual for sick and annual leave: workers will benefit from greater flexibility to take only the hours they need off work rather than a day, employers will benefit from a simpler system.

A shift to pro rata sick leave: employers will benefit from a fairer system where sick leave entitlements are proportionate to hours actually worked.

Leave Compensation Payment for casual employees: casual employees will generally see an increase to their pay by receiving an upfront payment of 12.5% for each hour worked, instead of accruing annual and sick leave or receiving the current 8% Pay-As-You-Go payment.

Leave Compensation Payment for additional hours worked: any hours worked on top of contracted hours will not accrue annual or sick leave but workers will receive an upfront payment of 12.5% for each additional hour worked.

Family violence and bereavement leave: employees will now be able to access bereavement leave and family violence leave from the first day of employment.

Returning from parental leave: new parents will now receive their full pay for annual leave when they return from parental leave, a major shift from the status quo.

Mandatory pay statements: employers will now be required to provide clear pay statements each pay period, itemising pay and leave in a way that’s transparent and easy to understand.

Cashing up annual leave: Where a worker has a large annual leave balance there will be more flexibility to cash it up. Currently they can only request to cash up one week in each year. Now they will be able to cash up 25% of their total annual leave balance each year. Employers who agree to cashing up will benefit from reduced leave liability.

Gone are the days of multiple, confusing calculations for leave payments. One single streamlined and simplified leave payment method will apply for all types of leave.

For many people, leave entitlements will stay the same – what will change is how it is calculated.

Two groups that will receive an increase in entitlements are parents and casual workers, says Ms van Velden.

Under the current system, parents returning from parental leave often face reduced income when transitioning back from parental leave. Our reforms recognise the unique challenges faced by families returning to work after parental leave. Now, parents returning from parental leave will receive their full leave pay when they take leave.

Leave payments will also be much simpler for casual workers.

The idea of stored annual and sick leave is difficult to apply to casual work, where there is no expectation of ongoing employment or fixed hours. With the shift to the Leave Compensation Payment system, casual workers will receive 4 per cent pay increase to recognise leave entitlements.

Employers will benefit by removing the complexity of having to track leave balances beyond contracted hours.

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

In December 2024, I announced a change of direction for Holidays Act reform based on consultation feedback. My ambition then was to pass a new Act by the end of term – and I am pleased to confirm that remains on track.

There will be a 24-month implementation period after the Employment Leave Bill is passed into law, to allow for a smooth transition for employers and payroll providers.

Notes for editor: Full details of the proposed changes, including the Cabinet paper and an explainer sheet, are attached and available on the MBIE website Holidays Act reform | Ministry of Business, Innovation & Employment