The Employment Leave Bill has been introduced by Parliament, intended to replace the Holidays Act 2003. The key point is that while the categories of leave and minimum yearly entitlements for full-time employees are broadly unchanged, the mechanics will be different; leave will be earned, recorded and taken primarily in hours, with rules designed to be simpler for payroll and more consistent for variable work patterns.

The Bill is not yet law, but we can expect to see a new Act passed later this year. The policy intent is a 24 month implementation period after enactment before the new regime comes into force, so employers and payroll providers have the opportunity to update their systems, policies and employment agreements. 

The high-level shift: From “weeks and days” to “hours from day one”

Under the proposed framework, leave accrual becomes a statutory requirement from day one. Annual leave would accrue at 0.0769 hours for each standard hour worked, and sick leave would accrue at 0.0385 hours for each standard hour worked. Balances would be banked in. Annual leave would generally not accrue during unpaid leave or while an employee is receiving ACC compensation and not working, subject to limited exceptions. 

One rate for all leave

The Bill also proposes that leave pay is simplified to a single hourly rate, based on standard hours (for salaried employees) plus fixed allowances but generally excluding variable remuneration such as commission.

The most significant change since earlier announcements: “Standard hours” replaces “contracted hours”

Leave would accrue based on an employee’s “standard hours”, which replaces the previously proposed “contracted hours”. Standard hours are the hours an employee is required to work under their employment agreement. Annual leave can be taken during an employee’s standard hours, which are either identified through:

1. the employment agreement;

2. a work roster (where leave is requested after rosters are issued); or

3. a notional roster where the agreement does not describe the pattern with enough detail. This would make the drafting of hours and patterns of work, and the discipline of updating them in writing, critical if this change is enacted.

New cost line: The Leave Compensation Payment 

The Leave Compensation Payment (LCP) is the key new feature proposed which provides simplicity but gives rise to cost. The LCP would be a 12.5% payment on additional and casual hours worked in each pay period. Businesses with employees working additional hours (i.e. hours in excess of those required to be worked under their employment agreements), or casual labour, will need to consider how this new LCP will impact the cost of doing business. Payroll systems would also need to be reviewed to ensure that the LCP is able to be recorded separately. 

Multiple roles and multiple agreements

The Bill also proposes to address situations where an employee works in more than one role for the same employer. It would treat each role as distinct. The same approach would apply where an employee has more than one employment agreement with the same employer. This would reduce ambiguity, but would increase the importance of clear documentation and accurate payroll information where employees move between roles or have dual arrangements with the same employer.

Key takeaways for employers

What should employers do now? Each organisation will need its own lens on the reforms, because impact will turn on workforce planning and patterns. Employers should focus on mapping which hours are truly standard hours and which are additional or casual, and then modelling the likely LCP cost component. In parallel, employers should engage early with payroll providers about hours-based leave banking and separate LCP reporting. Employers should also review their leave policies, employment agreements and rostering practices to ensure that “standard hours” can be clearly identified and that they are updated when patterns change. Timely and clear employee communications are also important, particularly for employees with variable pay components.

We will monitor the Bill as it progresses through Parliament and provide updates as the detail is settled. We encourage you to make submissions on the Bill as it progresses, and we are happy to assist with this. If you would like help with planning and assessing cost and compliance impacts for your workforce, please contact one of our employment team.