New Leave Law Simplifies Pay for All Workers

New Zealand's long-troubled Holidays Act is finally being replaced, after the Employment Leave Bill passed its third and final reading in Parliament this week.

Workplace Relations and Safety Minister Brooke van Velden described the reform as the delivery of something workers and businesses have been asking governments to do for years. The Employment Manufacturers Association (EMA) called it the most significant improvement to New Zealand's leave system in more than two decades.

The old Holidays Act has been a headache for employers of all sizes. EMA Head of Advocacy and Strategy Alan McDonald said the legislation created uncertainty, confusion, and back-pay liabilities ranging from thousands to tens of millions of dollars across different organisations. "After years of reviews and reform attempts, the new legislation finally delivers what businesses have been seeking," he said.

The centrepiece of the new law is a shift to an hours-based accrual system, where annual and sick leave build up in direct proportion to an employee's standard hours of work — something successive governments had promised but never delivered. McDonald said this particularly benefits workers on part-time, variable, or flexible arrangements, who have been poorly served by the existing framework.

Other key changes under the new law include:

- Annual, sick, bereavement, and family violence leave available from an employee's first day of work, rather than after a stand-down period.
- A single hourly rate used to pay all types of leave.
- A new 12.5% Leave Compensation Payment for additional and casual hours, replacing the requirement to accrue annual and sick leave for those hours.
- Mandatory pay statements that clearly itemise pay and leave balances.
- Greater flexibility to cash up annual leave — workers will be able to cash up 25% of their total annual leave balance each year.
- A new test for workers who don't have a set pattern of work, to determine what counts as an otherwise working day.
- Removal of the annual leave payment penalty for employees returning from parental leave.

Businesses will have time to adjust. There is a 24-month lead-in before the new system takes effect, plus an additional year to update leave terms in employment agreements. McDonald said the transition period is essential to avoid repeating the problems of the current system, with businesses, payroll providers, and software developers all needing to update their systems.

MBIE will publish guidance on its Employment New Zealand website to support the transition, with initial resources available once the Bill receives Royal assent.

"We've already had decades of overcomplicated legislation," van Velden said. "I hope this will be enduring to give businesses and workers the simplicity and stability they need."