The future of employment law in New Zealand is set for a significant shift, aiming to create a fairer and more flexible system of employee entitlements. The proposed updates to the Holidays Act will introduce reforms that modernise how annual, sick, and holiday leave are calculated – moving away from days-based measures to a more precise hourly approach.
As someone who works closely with many small to medium-sized businesses through Aspiring Law, I understand that these changes can feel overwhelming at first. Rather than letting it get on top of you, the best approach is to reach out for support early. Getting the right advice now can save you time and money down the line – so you’re prepared for the upcoming legislation and can navigate it smoothly.
Key Highlights of the Proposed Legislation
- Annual Leave: Instead of earning 4 weeks after 12 months, employees will accrue annual leave based on 0.0769 hours per hour worked. This change ensures leave entitlements better reflect actual hours worked, particularly for casual, hourly, or variable-hour workers. Employees will also be able to take their accrued leave immediately and cash up to 25% of their entitlement.
- Casual Employees & Leave Payments: Casual workers will receive a 12.5% Leave Compensation Payment (LCP) instead of traditional holiday pay, aligning benefits more closely with hours worked across all employment types.
- Sick Leave: Sick leave will be accrued at 0.0385% per hour, capped at 160 hours. This is a shift from the lump-sum days to an hourly system, benefiting shift workers and those with irregular schedules.
- Public Holidays & Alternative Holidays: The new law simplifies the test for whether a public holiday is an Otherwise Working Day (OWD), based on whether the employee worked 7 out of the last 13 days. Alternative holidays will be earned proportionally, based on hours worked.
The draft legislation is expected to be published in January 2026 and enacted before the next election. It’s anticipated that the new rules will come into force after a 24-month lead-in period, providing businesses time to adapt their payroll systems and processes.
For salaried employees with predictable hours, the transition will be straightforward. But for hourly or shift workers, and those with fluctuating schedules, these reforms promise a fairer, more transparent system – recognising hours actually worked, including extra hours and irregular shifts.
At Aspiring Law, we are encouraging employers to start preparing now – particularly in updating payroll systems and policies – to ensure a smooth transition when the legislation takes effect.
Real-life Examples: How These Changes Will Impact Workers
- Example 1: Salary Employee. Safa works 40 hours a week and earns a fixed annual salary of $80,000. Under the proposed law, Safa will accrue approximately 3.076 hours of annual leave per week worked. After 13 weeks, she will have accumulated around 40 hours – equivalent to one week of leave – paid at her effective hourly rate. This system ensures her leave accurately reflects her consistent work schedule.
- Example 2: Variable-Hour Employee. Paul has an employment contract for at least 30 hours per week at $26 per hour but sometimes works more than that. Only the contracted 30 hours will count towards his accrued leave, earning about 2.3 hours per week. Hours he works above this contract will attract a Leave Compensation Payment. For instance, if one week he works 36 hours, he earns 2.3 hours of leave plus additional earnings for extra hours at 12.5%. This method fairly accounts for his variable hours.
Final Thoughts
These legislative reforms are a positive step toward a more equitable and flexible employment environment, although there are some changes which still need to be fine-tuned in the select committee stage of the process. My advice to Aspiring Law clients is stay informed and proactive as will ensure that both you and your employees benefit from a transparent, modern approach to leave entitlements.
If you want to learn more about these changes or need tailored advice, please contact me on 03 443 0925.