Holidays Act Reform: What the Employment Leave Bill means for employers

In March, the long awaited Employment Leave Bill was introduced by the Government, to repeal and replace the Holidays Act 2003 in its entirety. The Bill aims to simplify how leave is calculated and reduce the complexity which has led to widespread non-compliance.   

The Bill is expected to pass before the General Election in November this year. However, there will be a 24-month transition period to enable a significant period of adjustment for employers to ensure compliance, including updating employment agreements and payroll administration.  

Overview 

The Bill fundamentally changes the way that leave is accrued, moving to types of working hours.  These are: 

• Standard hours: hours an employee is required to work as set out in their employment agreement and for which the employer must pay. 
• Additional hours: hours worked above standard hours, where the employee is entitled to additional payment for these hours. 
• Casual hours: hours worked where there is no obligation on the employer to offer work or the employee to accept it. 

An employee cannot be both a standard hours and casual hours employee for the same role. 

Key changes proposed 

• Annual leave: for permanent and fixed-term employees, annual leave will be accrued and used in hours, rather than weeks or days, from the first day of employment. This reduces complexity for employers in having a standard hourly leave rate, rather than having to choose between different payment methodologies. Arguably, workers will benefit from greater flexibility as they may request leave for a set period of hours, rather than a full day.   
• Cashing up annual leave: Workers may cash up 25% of their total annual leave balance each year, rather than being limited to a cash up payment of up to one week per year.  Employers should be considering the potential cashflow implications of large leave balances being cashed up at once.   
• Sick Leave: as with annual leave, sick leave will move to an hours-based accrual system, accrued from the first day of employment, up to a maximum cap of 160 hours – equivalent to 10 days sick leave days per year, with a cap of 20 days for most full time employees.  Annual leave and sick leave will not accrue for hours that are taken as unpaid leave, or when the employee is receiving ACC compensation. 
• Pro rata sick leave: Entitlement to sick leave will be proportionate to hours worked by an employee. 
• Casual employee leave compensation payment: casual employees will receive a 12.5% leave compensation payment for all hours worked (an increase from the current 8% holiday pay rate, which is ‘paid as you go’).  

• Leave compensation payment for additional hours worked: Permanent or fixed term employees who work additional hours will also be entitled to the leave compensation payment for each additional hour worked. 
• New ‘otherwise working day’ test for public holidays: This test will apply to public holidays for employees who do not have a pattern of work set out in their employment agreement. Under the test, a day is treated as an otherwise working day if the employee has worked (or was on paid or unpaid leave) for 50% or more of the same day of the week as the public holiday in the preceding 13 weeks. 
• Family Violence and Bereavement leave: All workers will have access to bereavement leave and family violence leave entitlements from the first day of employment, instead of six months after employment commences. It is proposed that there will be the ability to take part days of these entitlements. 
• Returning from parental leave: annual leave will be accrued on the employee's full pay rate, rather than over the prior 52 weeks, when new parents return from parental leave. 
• Mandatory pay statements: employers will be required to provide clear pay statements each pay period. They will need to itemise pay and leave in a way that is transparent and easy for workers to understand. 

Will the changes simplify leave?  

The Holidays Act has been notoriously complex and its interpretation lacking in certainty, in particular where there are varied working arrangements.  In our view, the changes will create a simplified regime for employers and employees. For example, there will be clarity and consistency promoted by the Bill’s introduction of one hourly leave rate for calculating entitlements, rather than multiple different calculations.   

What happens next?  

The Bill will be worked through the Select Committee process, with its Report being due by 13 July 2025.  The Bill will then be returned to Parliament and expected to pass before the election.   

If implemented, the changes will require significant payroll and employment agreement updates.  Employer preparation over the 24-month transition period will be essential. 

Guidance for employers

Until the Bill is passed into law, the Holidays Act applies, and employers need to comply with the existing law.  Employers remain obligated to ensure they are providing correct entitlements and leave payments to employees, under the Holidays Act, as well as remedy any non-compliance arising. 

We will provide updates as the Bill progresses.  If you have any questions, please contact a member of our specialist employment law team at [email protected] or 07 282 0174.