There has been plenty to talk about around the office for those with an interest in New Zealand payroll compliance. On Tuesday 23rd September, the Reforming employment leave legislation paper was released, informing the proposed changes to the Holidays Act in New Zealand (potentially to be known at the Employment Leave Act).
This change has been expected and a long time coming, with businesses across New Zealand screaming for clearer legislation around payroll – many of whom have been through remediations of their historic payroll data, and complex system rectifications. These proposed changes still need to be passed, with the expectation of this happening in 2026 (prior to the next election) followed by a 24-month implementation period.
The below outlines a high-level view of the changes based on current rules to proposed rules.
Annual Holidays
Current: 4 weeks after 12 months; difficult to define a “week” for variable hours.
Proposed: Accrues from day one (0.0769 hrs per contracted hr) with leave hours being ‘banked’ and no balance adjustment if contracted hours change; leave can be taken in part-days against contracted hours as annual leave will be held in hours; option to cash up 25% of balance annually.
Sick Leave
Current: 10 days after 6 months (same for part- and full-time).
Proposed: Accrues in hours from day one, capped at 160 hrs; proportional to hours worked; can use part-days as sick leave will be held in hours. Leave will be taken against contracted hours and any hours a worker has accepted.
Extra / Additional Hours
Current: Casuals get 8% of gross earnings, limited leave eligibility.
Proposed: 12.5% ‘leave compensation payment’ for all hours above contracted hours (excl. some salaried) and for all casual hours.
Bereavement & Family Violence Leave
Current: After 6 months.
Proposed: Available from day one; can take part-days. Will remain as a day-based entitlement.
Public Holidays / Otherwise Working Day (OWD)
Current: Often unclear for variable hours.
Proposed: New test – day is an OWD if worked/paid on ≥50% of “previous weeks” (exact period still unclear; one mentioned possible test was the past 7/13 weeks worked on the day in question in the media briefing).
Alternative Holidays
Current: Time-and-a-half for hours worked plus credit of a full day’s alternative leave.
Proposed: Time-and-a-half + accrual of 1 hr alternative leave per hr worked, plus paid leave for unworked hours.
Payment Types
Current: Different rules for different leave types.
Proposed: One hourly leave rate based on base wage with mention of an hourly average of piece rates; excludes bonuses/commission/penal rates.
Parental Leave
Current: Annual leave pay reduced after parental leave. Update Annual leave paid at AWE which results in a reduced payment rate for the first year’s payment.
Proposed: Normal pay applies; no reduction (remove)
Pay Statements
Proposed: Mandatory itemised pay statements each pay period (physical, digital, or portal).
The changes seem to do what they propose to – make legislation clearer and easier to manage for employers, but there will be plenty of difference in this new Act that will fundamentally change the way we consider payroll or leave entitlements (from an employee and operational perspective). Some of the biggest changes that I can see being the hardest to adjust to would be:
- The concept of ‘4 weeks annual leave entitlement’ being gone. The value of 0.0769 hours accrued per hour worked is calculated from 4-week entitlement (160 hours / 2,080 hours), but that’s where the connection ends. An employee who works a year part time without taking leave, then moves to full time will not have 4 weeks of leave to take. Likewise, the reverse of this scenario the employee will have more than 4 weeks to take.
- With annual leave not being taken in weeks / defined in weeks, people who regularly work over their contracted hours or minimum hours per week (think hospitality / healthcare) will enjoy the benefit of the 12.5% leave compensation payment during those week – however when they go to take leave, this will be based on their agreed / contracted definition of a week.
- Termination payments will no longer include 8% of gross earnings since last anniversary and will be a simple payment of their ‘banked’ leave balance hours.
- Commission based earners who usually have lower base pay, will be massively impacted with this now not impacting their leave rates.
- Casual employees will not require investigation for entitlement to sick leave, with this being replaced / included within the 12.5% leave compensation payment in addition to their hours worked and paid.
NLC Payroll will continue to study and learn more about these proposed changes so that we are well positioned to help our customers, and businesses around New Zealand to apply these rules to their payroll and processes.
If you’re a visual learner – there is a great table that MBIE have released linked below that you can share around your team.
Sources
https://www.mbie.govt.nz/dmsdocument/31196-key-changes-to-the-employment-leave-system