The Employment Leave Bill (Bill) has passed its final reading in Parliament this week and is expected to receive the Royal Assent which will pass it into law in the coming days. Read on to find out more about this significant law change below.

Purpose

The Bill is a product of years of criticism around the complexity of the Holidays Act 2003 which has been a source of headaches for employers small and large over the years creating large remediation bills. According to the current Government, the Bill aims to cut out this complexity from the employee leave regime and is intended to be simpler, easier to administer and more predictable for employers and employees.

Timeframes

There will be a two-year transition period from the date the Bill receives the Royal Assent, meaning the changes will come into force sometime in July / August 2028.

The Bill represents the most significant overhaul of New Zealand's leave entitlements for over 20 years and it will take some time for employers and payroll providers to ensure its systems and processes are up to scratch, with the transition period intended to allow for this to take place and for conversion calculations to be completed.

Key changes

New categories of hours worked

These categories will determine how leave accrues and is paid:

• Standard hours – hours where an employee is required to work, and an employer must pay, whether or not the employee is required to work those hours.
• Casual hours – hours an employee works if, under the employment agreement, the employer is not obliged to offer work, and the employee is not required to accept any offer of work.
• Additional hours – any hours worked in addition to the employees standard hours where the employee receives an additional payment for, and any hours worked under an availability provision. This excludes hours worked where the employee is paid a salary and where payment for those hours is not provided for in addition to that salary.

The Bill has introduced the concept of a "notional" roster for employees with variable hours, to be agreed in writing as between the employer and the employee in the employment agreement. There is an onus on both parties to ensure the notional roster accurately reflects the intended pattern of the employee's standard hours, and is kept up to date.  

Hours based accrual for sick leave and annual leave

Annual and sick leave will accrue in hours (as opposed to days) from day one of an employee commencing employment.

Annual leave will accrue at the specified rate of 0.0769 hours per standard hour of work. It will also accrue when a worker is on parental, volunteer or jury service leave. It will not accrue where the employee is on any other type of unpaid leave or when they are receiving accident compensation.

Sick leave will accrue at the rate of 0.0385 hours per standard hour of work and during the same unworked periods as annual leave (up to a 160-hour cap).

Both types of leave will be able to be taken in part day or hourly increments. Leave entitlements are able to be banked, with no balance adjustment where an employee's standard hours change.

A new "Leave Compensation Payment"

A leave compensation payment (LCP) of 12.5% of an employee's ordinary hourly rate will be paid on all casual hours as opposed to accruing annual or sick leave.

The LCP will also be payable to employees who complete additional hours outside of their standard hours of work (which they receive additional payment for), instead of accruing annual or sick leave for those hours.

Cashing up of Annual Leave

Employees may also request to cash up to 25% of their accrued annual leave as at the anniversary of their start date, subject to employer agreement. Where requested by the employee, this may assist a business managing significant leave liabilities while providing the employee with the choice over how they use their leave entitlements.

Public Holidays

The Bill sets out changes to the "Otherwise Working Day" test for employees without agreed working days (or patterns of days). Under the Bill, a day will be treated as an Otherwise Working Day if the employee has worked 50% or more of the same day of the week as the public holiday in the 13 weeks immediately preceding the public holiday.

Alternative holidays

Where an employee works on a public holiday which is an Otherwise Working Day, alternative holidays will accrue at a rate of 1:1 for every hour worked (or where the employee is on call and required to work if called). This leave can be taken on any day that the employee could work under their employment agreement or can be cashed up at any time.

Changes to bereavement and family violence leave

Eligibility for bereavement leave and family violence leave will arise from the commencement of employment, rather than after six months’ continuous service. Unlike the changes to annual leave and sick leave, they will remain as days-based entitlements. Employers will therefore need to be prepared to provide these leave entitlements from an employee’s first day.

Looking ahead to the election

The Bill has not been without its criticisms. The Labour and Green Parties were firmly opposed to the Bill in its current form on the basis that it is less favourable to employees than the current regime. A change of government later this year may therefore result in the new regime being scrapped, put on hold or significantly changed.

However, all Parties have consistently agreed that the Holidays Act 2003 needs reform. Given the extensive lead in time, any new government could look to either make amendments to the existing legislation once passed (and ahead of the transition period) or take the changes back to the drawing board all together.

What should employers do?

Employers should be prepared for 2028, irrespective of what happens come election time. Work should start with payroll providers early to understand what is required to ensure that any payroll system is able to handle and administer the changes correctly.

Employment agreements should be updated to reflect the changes, with existing agreements reviewed to ensure that employees' hours are consistent with the hours they work in practice, as this will become the centrepiece for determining entitlements in several cases. Given the transitional arrangements, we recommend employers start planning for the changes now. If a term in an employment agreement is more favourable than the equivalent statutory entitlement, the agreement term will prevail during that first year which may be costly and difficult to administer.

If you would like to understand more about these changes, and what they could mean for your business, get in touch with one of our employment law specialists.