The Government has announced a significant overhaul of New Zealand's leave entitlements, replacing the complex Holidays Act 2003 with a new Employment Leave Act. Described as a "win for workers, a win for businesses, and a win for New Zealand," these changes aim to simplify how leave is calculated and managed.
For business owners and financial decision-makers, understanding these shifts is crucial for compliance and workforce management. Here’s a straightforward guide to what’s changing and how it will impact your operations.
Key Changes to Leave Entitlements
The new Act introduces a more proportional and transparent system, moving away from the previous one-size-fits-all model. The core changes affect annual leave, sick leave, and how casual employees are compensated.
Annual Leave: Accrual from day one
Under the old system, employees were entitled to four weeks of annual leave only after completing 12 months of service. The new Act changes this significantly.
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Accrual from Start: Annual leave will now accrue from an employee's first day on the job, proportional to the hours they work. The rate is set at 0.0769 leave hours per hour worked, which still equates to four weeks per year for a full-time employee.
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Hourly-Based System: Leave will be taken on an hourly basis. This provides greater flexibility, allowing an employee to take a few hours off for an appointment without using a full day of leave.
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Cashing Up Leave: Employees will be able to cash up 25% of their total leave balance, rather than being limited to one week per year. This can help reduce large leave liabilities on your balance sheet.
Sick leave: a proportional approach
Similar to annual leave, sick leave will also accrue from day one. This marks a departure from the current system where employees receive 10 days only after six months of employment.
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Accrual Rate: Sick leave will accrue at a rate of 0.0385 hours for every hour worked. For a full-time employee, this works out to the same 10 days per year.
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Impact on Part-Time Staff: This is a key change for businesses. Part-time employees will now accrue sick leave proportionally. For example, an employee working two days a week will be entitled to four days of sick leave per year, rather than the previous 10.
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Hourly Use: Like annual leave, sick leave can be taken in hourly blocks.
Casual Workers: Introducing the LCP
The new Act introduces a "Leave Compensation Payment" (LCP) for casual workers, who are not eligible for annual or sick leave.
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Increased Pay: Casual employees will receive a 12.5% LCP on top of their wages. This replaces the current 8% "pay-as-you-go" holiday pay and includes compensation for sick leave.
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Additional Hours: For full-time unsalaried workers, any extra hours worked beyond their contract will earn the LCP instead of accruing more leave. While this may increase initial costs for employers currently paying the 8% rate, it simplifies payroll for variable hours.
Other Important Updates
Beyond these core changes, the new legislation includes several other adjustments that businesses need to be aware of.
Personal Leave payments
Employees returning from parental leave will benefit from fairer annual leave payments. While they will still accrue annual leave during their parental leave, any leave taken upon their return will be paid at their full, ordinary salary rate, not a rate based on their reduced parental leave earnings.
Commission and Bonus Earners
The changes will affect how holiday pay is calculated for employees who earn significant commissions or bonuses. Under the new system, annual leave payments will be based on an employee's base salary only, excluding these additional payments. This will simplify calculations but may be unwelcome news for high-performing sales staff.
Preparing for Compliance
The Government has planned a 24-month implementation period to allow businesses to adapt their payroll and HR systems. It's a generous timeframe, but the transition will require careful planning.
For many businesses, this will involve updating payroll software and processes. You will also need to maintain previous employment records for six years, which means the old systems may need to be accessible even after the new Act is in full effect.
These reforms are designed to create a fairer and less complicated system for everyone. By understanding the changes now, you can ensure a smooth transition, maintain compliance, and continue to support your people effectively.
If you have questions about how these changes will affect your business specifically, please reach out here. We are here to help you navigate these new regulations with confidence.