After years of payroll failures, billions in remediation payments and persistent calls for reform from businesses and unions alike, the Government is scrapping and replacing the Holidays Act in a move it says will finally fix New Zealand's "broken" leave system.
Workplace Relations and Safety Minister Brooke van Velden revealed today that Cabinet had agreed to repeal and replace the Holidays Act 2003 with a new Employment Leave Act.
The changes were aimed at making leave calculations more straightforward and ensuring that workers received their correct 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.
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"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."
The 20-year-old leave legislation has long been criticised for being overly complex and difficult to apply, particularly for workers with variable hours, such as the tourism, hospitality and health sectors where non-traditional work patterns were common.
Employers often miscalculate entitlements, leading to widespread non-compliance and billions in remediation payments across both public and private sectors.
As of August, Health NZ Te Whatu Ora had paid out more than $544.2m in remediation payments to 72,296 current employees. For the health sector alone, the total financial liability was estimated to be more than $2 billion.
"Employers struggle to understand and apply the Holidays Act correctly, and employees struggle to understand their entitlements," van Velden said.
The current law is so confusing employers are forking out billions in back pay to workers for miscalculated earnings. (Source: 1News)
Under the current system, workers become entitled to four weeks of annual leave after completing 12 months of continuous employment. Sick leave kicks in after six months, with a lump entitlement of 10 days per year—regardless of how many days a week the employee works.
Under the proposed system, both annual and sick leave entitlements would accrue from the first day of employment and be based on the number of hours worked.
For example, a full-time worker on 40 hours a week would accrue 0.0769 hours of annual leave and 0.0385 hours of sick leave for every hour worked. Over a year, this would add up to 160 hours (four weeks) of annual leave and 80 hours (10 days) of sick leave.
Rather than a flat entitlement, employees would earn leave in direct proportion to their contracted hours.
Casual employees would receive a 12.5% leave compensation payment for each hour worked, instead of accruing annual and sick leave or receiving the current 8% "pay-as-you-go" payment.
Any additional hours worked on top of contracted hours would also attract the 12.5% payment, rather than accruing further leave.
The proposal also means workers would be able to take sick leave in hours rather than being forced to use a full day's entitlement, bereavement leave or family violence leave would be accessible from the first day of employment, and new parents would receive their full pay of annual leave when they return from parental leave.
Employers would be required to provide clear itemised pay statements each pay period and show pay and leave in a transparent and easy to understand way.
Workers with large annual leave balances would have more flexibility to cash up their leave, with the option to request up to 25% of their total annual leave balance each year.
Parents and casual workers are set to be the biggest beneficiaries. (Source: 1News)
"Gone are the days of multiple, confusing calculations for leave payments," said van Velden.
"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."
She added that parents and casual workers would receive an increase in entitlements, with the full leave payout to new parents and additional 4% increase to recognise leave entitlements respectively.
"All workers, businesses, and their families will benefit from leave payments being simpler and more predictable, with greater transparency and certainty."
The changes were expected to affect around 2.2 million workers with contracted hours, as well as tens of thousands of casual and part-time employees.
There would be a 24-month implementation period after the Employment Leave Bill was passed into law to allow for a smooth transition for employers and payroll providers. Until then, the Holidays Act would remain in place.
Public submissions would be invited during the select committee stage of the legislative process.
Labour has hit out at the prime minister over the proposed overhaul of employment leave legislation, accusing Luxon of breaking "yet another election promise" and saying he had "turned his back" on part-time workers.
The party's workplace relations and safety spokesperson Jan Tinetti said the Government's plan put people at risk and did not reflect the reality of illness.
"People don’t fall ill on a pro-rated schedule depending on how many hours they work. If someone starts a job and gets sick, they should be able to take leave to recover. It’s as simple as that. No one should be forced to work while sick or lose income because they are unwell.
“The Prime Minister has cut jobs and overseen rising unemployment and is now choosing to make life harder for those who work part-time. He is out of touch with working New Zealanders."
Green Party workplace relations and safety spokesperson Teanau Tuiono said women would bear the brunt of changes to sick pay for part-time workers.
"Getting sick doesn't depend on whether you’re full or part-time. Under these changes, only some will be protected," he said.
"Part-time workers are disproportionately women, with many balancing jobs with caring responsibilities, like looking after sick children. This move means yet more unpaid work for them on top of what they are already doing to keep families, and our economy, going."
'Erosion of workers' rights' or 'long-overdue fix'?
The Employers and Manufacturers' Association says the announcement was a "long-overdue fix" to a system that had caused confusion and cost to both employers and employees.
Head of advocacy and strategy Alan McDonald said the act would bring "much-needed clarity and simplicity" to leave entitlements.
"Employers and employees should be able to more easily understand and apply the rules and that’s a win for everyone. Small to medium-sized businesses should welcome the changes as it brings clear calculations with few other considerations being required."
He said he supported changes like pro-rata sick leave taken in hours and increased annual leave cash-out options.
"Under the current rules, someone working one shift a week could receive the same sick leave entitlement as someone working full-time. That imbalance needed to be addressed."
The New Zealand Council of Trade Unions said in a statement that there would be "winners and losers" as a result of the changes to employment leave legislation.
In a release on Tuesday, it welcomed changes that would provide sick, bereavement, and family violence leave from day one of employment, increase casual compensation and provision of fairer pay statements.
However, it said some workers would miss out in the proposals, including the removal of commission and bonuses from holiday pay, reducing sick leave for part-timers, and the removal leave accruing for workers on ACC.
NZCTU president Richard Wagstaff said the unions had long advocated for improvements to the legislation
He said businesses and unions agreed when the review commenced under the last government that legislation should be simplified but not result in a reduction of worker leave entitlements.
"The proposed changes do not fully honour that understanding – they will reduce sick leave entitlements for part-time workers (and holiday pay for those on commission).
"The impacts will disproportionately fall on Māori, Pasifika, women and other vulnerable workers, who are more likely to be in part-time and insecure work.
"It is good that the Act will be simplified but that didn’t need to come at the expense of the hard-won entitlements of working people."
Workers First Union, the country's second-largest union, say the sick leave policy was a continuation of what they said was the Government's "erosion of workers rights".
"There is no defensible reason for a person working part-time to have access to less sick leave than someone working full-time," said general secretary Dennis Maga.
"No matter what hours you work, everyone is prone to getting sick, and especially those with kids who are more likely to be in part-time work."
He said he had heard of people in the retail sector being forced to use up annual leave to cover periods of illness beyond their statutory leave entitlements.
"Those who work customer-facing roles are much more likely to become ill, and it’s in everyone’s interest to ensure they can rest and not risk spreading illness by being forced into work to make ends meet."
Business NZ's Katherine Rich said fixing the Holidays Act had been a long time coming.
"Remedying the Act has been a long time coming, and it is positive that the planned new legislation will contain the policy recommendations of BusinessNZ members," Rich said.
Her organisation had also long advocated for an hours-based approach to leave.
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