Solving complexity by cutting pay
The Holidays Act 2003 was broken. A Simpson Grierson survey cited in the government’s own cabinet paper found 63% of employers identified its simplification as their top priority for four consecutive elections. Banks, retailers, and government agencies had been caught out by its labyrinthine calculations, triggering costly back-pay exercises.
So the Employment Leave Bill, introduced in March 2026, replaces the whole framework with an hours-based accrual system. Leave accrues at 0.0769 hours per standard hour worked, equivalent to four weeks for full-time staff. Clean. Simple. The problem is what happens when you calculate the pay rate for that leave.
Under the new system, all leave is paid at the lowest hourly rate payable for the day on which leave is taken. Commissions, bonuses, and variable allowances are explicitly excluded. As Jim Roberts, partner at Hesketh Henry, told RNZ: “In its simplest form, holiday payments are going from being calculated on everything earned to being calculated on the lowest possible rate.”
A salesperson on 80% commission gets leave at 20% of their real income
Roberts gave the example that makes the bill’s impact concrete: a salesperson earning 80% of their income through commissions would have annual leave paid at just 20% of their usual earnings. Under the current system, they get 100%.
“There are salespeople who are set up on close to, or the minimum wage, as a retainer, and everything else is commission,” Roberts said. “Their annual holidays will be at minimum wage. There is no incentive whatsoever for those employees to ever take annual holidays.”
This is not a niche concern. It hits commission-based sales workers across retail, real estate, recruitment, insurance, and financial services. Matt Harrop, special counsel at Duncan Cotterill, flagged banking professionals with bonus structures as another affected group. And shift workers with overtime and unsocial hours allowances face the same problem.
At select committee hearings, charge nurse Mary Becker told MPs she faces a $2,700 annual pay cut because shift and overtime allowances will no longer factor into leave payments. PSA national secretary Fleur Fitzsimons said the bill would make workers’ lives “materially worse.”
The government’s own cabinet paper states explicitly: “It is the employees with low base rates supplemented with overtime or commissions who are set to lose the most.”
Employers face a dual payroll nightmare during transition
The worker-impact story is getting attention. What is getting less coverage is the compliance burden landing on employers. The Law Association’s submission warned that transitional provisions could require some employers to operate multiple payroll systems simultaneously during the 24-month changeover window.
EMA’s Alan McDonald acknowledged in March that while the bill “significantly simplifies the system,” there is “still a bit for employers to get their heads around, particularly how standard hours apply to existing arrangements and how employment contracts may need to be updated.”
For any business running commission-heavy or shift-based operations, the practical to-do list is already long: reviewing every employment contract to determine what counts as a fixed allowance versus a variable component, assessing whether current pay structures will create leave-avoidance behaviour, checking whether payroll software can handle the new accrual methodology alongside the old system, and considering whether to restructure variable pay into fixed allowances to protect entitlements.
The minister’s defence does not survive contact with her own cabinet paper
Workplace Relations Minister Brooke van Velden has defended the bill as cost-neutral overall. In September 2025, she argued the current system created a “hesitancy to allow people to have bonuses because of the windfall gains that come in annual leave,” meaning employers were structurally deterred from offering variable pay. At select committee, she acknowledged there would be “edge cases” where some people would see a difference in pay.
That framing sits uncomfortably with a cabinet paper that explicitly identifies the lowest-paid variable workers as the biggest losers. When your own policy documents contradict your public reassurances, the problem is not at the edges.
What happens next matters more than what happened before
The Education and Workforce Select Committee reports back by 13 July 2026. If the commission-pay provisions survive intact, employers in sales-heavy sectors, retail, recruitment, and essential services face a 24-month implementation clock.
The Holidays Act needed replacing. Nobody disputes that. But the Employment Leave Bill has traded one form of non-compliance for another kind of unfairness, and created a transition period that may cost businesses more in payroll system overhauls than the old Act ever cost them in back-pay. For employers with variable-pay workforces, the time to restructure remuneration is before the bill passes, not after.
Sources
- Why commission-earners are set to receive the ‘lowest hourly rate’ of pay (2026-05-06)
- Proposed leave bill will make workers’ lives ‘materially worse’, select committee hears (2026-05-06)
- Compliance risk for employers under new leave laws, warn lawyers (2026-04-24)
- How the Holidays Act overhaul will change sick leave rights and how time off is paid (2025-09-24)
- EMA backs Employment Leave Bill as step towards fixing Holidays Act (2026-03-12)