The cabinet has decided to repeal the Holidays Act 2003 and introduce a new Employment Leave Act, Workplace Relations and Safety Minister Brooke van Velden announced.
The changes were designed to simplify leave calculations and guarantee that workers receive their rightful entitlements.
“Full-time and part-time workers will start earning annual and sick leave in direct proportion to the hours they work,” Van Velden said.
“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.”
Key changes include:
Moving to hours-based accumulation for sick and annual leave
This means workers will gain increased flexibility to take only the hours of leave they need, rather than a full day, while employers will benefit from a more straightforward system.
Pro rata sick leave
Employers will benefit from a fairer system in which sick leave entitlements are aligned with the actual hours worked.
Leave compensation payment for casual employees
Casual employees will typically receive higher pay through an upfront 12.5% payment for each hour worked, replacing the accrual of annual and sick leave or the current 8% Pay-As-You-Go payment.
Leave compensation payment for additional hours
Hours worked beyond contracted hours will not accumulate annual or sick leave, but workers will receive an upfront payment of 12.5% for each extra hour worked.
Family violence and bereavement leave
Employees will be given access to bereavement leave and family violence leave starting from their first day of employment.
Returning from parental leave
New parents will now be paid their full annual leave entitlement when returning from parental leave, marking a major change from the previous practice in which parents returning from parental leave often experience a reduction in income when they transition back to work.
“Our reforms recognise the unique challenges faced by families returning to work after parental leave,” Van Velden said. ”Now, parents returning from parental leave will receive their full leave pay when they take leave.”
Mandatory pay statements
Employers will have to provide clear pay statements each pay period, detailing pay and leave in a transparent and easy-to-understand manner.
The 20-year-old leave legislation has faced longstanding criticism for being too complex and challenging to apply, especially for workers with variable hours in sectors like tourism, hospitality, and health, where non-traditional work patterns are common.
Employers frequently miscalculate entitlements, resulting in widespread non-compliance and billions in remediation payments in both the public and private sectors.
“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,” Van Velden said.
“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.”
“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.”
The changes are expected to impact approximately 2.2 million workers with contracted hours, along with tens of thousands of casual and part-time employees.