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The Employment Leave Act: Guidance, Outlook and What It Means for You

Business Central and Business South hosted a joint webinar on the Employment Leave Act, with speakers from BusinessNZ, MBIE and Anderson Lloyd. Here are the key points from the session, along with links to where you can find more information.

The law has not changed yet

The Employment Leave Act, passed earlier this year, completely replaces the Holidays Act 2003. It starts on 6 August 2028, and until then employers must keep following the current Holidays Act rules. The long lead time is there because payroll systems need to be reconfigured and employers need time to prepare.

The new Act will change how leave is earned, taken and paid. It sets minimum entitlements, and employers and employees can still agree to better leave and pay.

Key dates

Until 5 August 2028: the Holidays Act continues to apply.

6 August 2028: the Employment Leave Act starts, and employment agreements for new employees must comply.

6 August 2029: the end of the grace period for existing employment agreements. During this period employers must comply with the Act, and any entitlements that are more favourable to an employee continue to apply.

What is changing

Leave accrues from day one. Employees no longer need to work for a year before becoming entitled. They accrue annual and sick leave as they work, and the balance they have accrued is the leave they can take.

Annual leave accrues at 0.0769 hours for every standard hour worked, equivalent to 20 days a year. Sick leave accrues at half that rate, 0.0385 hours, equivalent to 10 days a year for a full time employee.

Three types of hours: standard hours (what the employment agreement says the employee is employed to work), additional hours (optional hours on top of standard hours) and casual hours (worked only if the employer offers work and the employee agrees). An employee cannot have both standard and casual hours for the same role.

Standard hours must be specified in the employment agreement or in a notional roster, agreed in writing. An employee can have more than one notional roster, for example for a busy season.

The 8% pay as you go payment for casuals is replaced by a Leave Compensation Payment (LCP). It applies to casual and additional hours and is at least 12.5% of the ordinary hourly rate, paid in each pay period in which the hours are worked. It includes 8% for annual leave and 4.5% for sick leave.

Bereavement and family violence leave days are not changing but will be available from the first day of work and can be taken in full or part days.

Guidance for employers

MBIE is working with employers and other organisations to make sure its guidance covers the complex edge cases and is supported by tools such as variation agreements. It is also applying the lessons learned from the Holidays Act. When you need to start preparing depends on your workforce: small employers with a few standard hours employees will need little change, while those with variable or casual hours will need more planning.

MBIE also stressed that the whole end-to-end system needs attention, not just the payroll system, including how it is configured and your payroll policies and procedures. It is working with payroll software providers, of which there are 124 registered in New Zealand.

Its suggested approach to planning is to learn about the changes, review your current arrangements, decide what needs to change, who will do it and when, and then take action.

Before 6 August 2028

Revisit your leave policies. Many are likely to become inconsistent with the law, such as enhanced or unlimited sick leave, paid parental leave top ups, and other special or discretionary leave. It is also a good time to plan for reducing high leave balances.

Update your employment agreements. Every employer will need to do this, and it requires consulting with employees. Employment New Zealand is expected to provide a variation template. It is also a chance to modernise agreements that may not reflect recent law changes.

Do not underestimate the education and negotiation involved. Employees are likely to have questions about their leave balance, their standard hours and how leave will be paid, particularly those who earn commission. Because more favourable entitlements continue during the grace period, some employees may want to negotiate to keep them.

Think about how behaviours might change. Leave in hours may mean more short periods of leave. Casual employees who currently have sick leave entitlements will lose them from 6 August 2028, so may use them beforehand.

The Act is intended to make things simpler. Accrual and payment rates are set, and it helps to think of leave like a bank balance that grows as you accrue and reduces as you use it. The transition will take work, but the new system should be easier for employers and employees to understand.

Your questions answered

What is the one thing a business should do now? Learn about the changes and understand what your workforce is made up of, for example office-based staff on standard hours or a large number of casuals, then check whether your contracts line up with where the law is heading.

Will commission payments attract the 12.5% LCP? No. The payment attaches to hours, not commission. Salaried employees who work a few extra hours as part of their salary are not working additional hours requiring payment, so no LCP applies. Guidance on piece rate workers is being drafted.

How can someone be casual and work additional hours? They cannot. Employees working casual hours work casual hours. Additional hours are worked by employees who have standard hours, so employers will need to decide which hours are standard and which are additional.

What is the most cost-effective first step for a business with limited HR resource? Apart from the Employment New Zealand resources, talk to your payroll provider.

What might businesses think is compliant but will not be? Payslip formats, because the LCP must be a specific part of the payslip; employment agreement wording; and the treatment of casual employees.

Where to find more information

These MBIE and Employment New Zealand pages are the best places to keep up with guidance as it is released, including a timeline for when further guidance will be published and a dedicated page for payroll software providers: