Understanding the Upcoming Changes to New Zealand’s Holidays Act

These proposed changes to the Holidays Act are set to bring significant changes across several key areas of payroll, including Annual Leave, Sick Leave, and Bereavement Leave. Details of the changes include:

Annual Leave

1. 1. Annual leave is shifting to an hours-based accrual model, making it easier to track and calculate leave more accurately.
   2. The method for calculating annual leave payments may shift to a new “greater of three” approach:
      • Ordinary Weekly Leave Pay
      • Quarterly Average Leave Pay (QALP)
      • Annual Average Leave Pay
   3. Employees may be allowed to cash up more than one week of annual leave per year.

Sick Leave

1. 1. Sick leave will be calculated on a pro-rata basis, ensuring employees receive their portion of the 10-day minimum entitlement. Employees earn sick leave in proportion to their hours worked.
   2. During the first year of employment, entitlement may start accruing from day one, instead of needing to wait six months.

Bereavement Leave

1. 1. A wider range of family relationships will be eligible for the standard three days of bereavement leave.

Annual Leave

1. Moving to an hours-based accrual model for annual leave will help ensure that employees will accrue annual leave based on their actual number of hours worked.
   This change helps to ensure leave is accrued fairly and accurately especially for those with an irregular or part-time work schedule. Whether someone works 20 hours one week and 35 the next, their leave accrual will reflect that. This is great news for employers managing part-time or casual staff—and for employees, it makes entitlements feel more accurate.This shift also supports modern and flexible work arrangements. Since the COVID-19 pandemic in 2020, flexible work has become a widely discussed topic and research shows it’s here to stay. In fact, studies show that 57.3% of employees in New Zealand agree their current job offers flexibility in how and when they work. As more people move away from the traditional in-office “9-5”, the existing week-by-week leave accrual model is starting to feel outdated.

   At its core, the hours-based accrual approach aims to improve the “simplicity” of the legislation for both employers and employees. By linking the accrual of annual leave to the number of hours worked, it not only promotes improved accuracy of accrual but supports the evolving nature of work in today’s world.

2. The aim of the new “greater of three” model is to help ensure that employees are paid fairly when taking their annual leave. It can be particularly helpful for those with variable income sources, such as overtime, commissions, seasonal work or irregular hours. The third calculation adds an extra layer of fairness and accuracy to annual leave payments making sure no one misses out just because their earnings are not the same every week.
3. By opening up the option to cash up more than one week of annual leave per entitlement gives employees greater flexibility in how they manage their leave liabilities and cash flow.This added freedom can also be a win for employers, helping manage leave balances more effectively. By encouraging/allowing employees to cash up more of their available annual leave, this can reduce the build-up of unused annual leave. As a result, final pays when the employee is terminated may be lowered, helping to make those final payouts more manageable.

 

Sick Leave

1. For employees who work irregular hours, calculating sick leave has always been a little tricky. Under the current system, sick leave is a bit one-size-fits-all. But not all jobs are 40 hours a week. The new pro-rata approach means everyone gets a fair entitlement based on the hours they actually work. It ensures all employees still receive their full 10-day entitlement with sick leave to better reflect what the employee actually works.
   
   This update helps provide greater clarity and consistency for both employers and employees, making it easier to manage sick leave entitlements for part-time, casual or irregular working hours.
   
2. One of the proposed changes to sick leave include allowing the sick leave to accrue over an employee’s first six months of employment. This means employees may be able to take sick leave earlier, rather than waiting until they reach their six months of employment to receive their entitlement. This gives employees more support in their first few months and more flexibility to access their sick leave.

 

Bereavement Leave

1. Expanding the list of family members eligible for bereavement leave allows for more inclusive and compassionate support for employees. This potential update to the legislation ensures employees are better supported during times of personal loss and can help strengthen the relationship between employers and staff by recognising the importance of empathy in the workplace.

 

If the potential changes under the new amendment for the Holidays act go through, a little preparation will go a long way. It’s a good idea to consider how as an employer, you can best prepare for what may lie ahead. Here’s what you can do now:

Annual Leave

• Update employment contracts to refer to hours rather than weeks.
  • You may want to start updating employment agreements to express their leave entitlements in “hours” rather than “weeks”. This will help align with the proposed shift to an hours-based annual leave accrual model. 

• Educate staff early—so they’re not surprised when their leave balances look different.

• • It’s a good idea to communicate this change to employees early on, so they’re not surprised when their leave balances appear in hours instead of weeks. The good news is that Crystal Payroll already uses hours for annual leave, which can help save both time and effort when transitioning to the new accrual model.

• Review how you’ll explain the “greater of three” calculation.

• • If the proposed “greater of three” calculation comes into effect, you’ll also need to be prepared to explain the proposed method of calculating annual leave to the employees if they ask. This could especially be the case for employees with variable sources of income and are curious about the calculations. Clear communication will help employees understand how their annual leave pay is determined and why it may differ from the previous calculations.

• Assess the impact of increased cash-up requests on your cash flow.

• • With the potential to cash up more than one week of annual leave each year, it’s important to discuss the new boundaries and options with your employees. It could prove helpful to consider the possible financial impact of more frequent or larger cash-ups of annual leave on your company’s cash flow and plan accordingly.

Sick Leave

• Start tracking hours worked accurately to ensure fair pro-rata calculations.

• • For sick leave, ensuring you’re accurately tracking the hours employees work. This will help ensure pro-rata entitlements are calculated correctly and fairly.

• Let staff know that sick leave may be available sooner under the proposed rules.

• • It’s important to inform employees that sick leave may start accruing over their first six months of employment and that  they can now use their sick leave earlier than before. Clear communication around how the proposed changes work can help avoid confusion and mistakes down the line.

Bereavement Leave

• Keep an eye out for the updated family member list. 
  • With the list of family members eligible for bereavement leave potentially being expanded, it’s a good idea to review the updated list once it’s released in the updated Holidays Act amendment. 

• Make sure your team knows what’s changed and who qualifies.

• • It’s worth taking the time to refresh your employees on who now qualifies for the bereavement leave, so there’s clear, transparent communication within your company.

 

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Keeping up with upcoming changes like these is key to staying compliant and confident. At Crystal Payroll, we regularly provide updates, resources, and tips to help businesses stay informed. Subscribe to our newsletter or follow our blog to stay up to date with the latest payroll news, legislative changes, and practical advice.

These proposed updates to the Holidays Act are about making leave simpler, more flexible, and fairer. That’s good news for employees—and for employers trying to stay compliant without the headaches. From switching to an hours-based leave accrual model to expanding bereavement leave and offering fairer ways to calculate leave payments, these updates are designed to better reflect how we work in today’s modern world.

For employers, a smooth transition starts with early preparation, reviewing employment agreements and keeping communication transparent with your employees. While change always comes with a bit of adjustment, taking these steps early can help reduce confusion, keep things compliant, and help everyone understand the potential coming changes to the entitlements in the Holidays Act.

Change is never easy—but it doesn’t have to be hard. With a bit of preparation and the right tools, transitioning to the updated Holidays Act can be smooth and stress-free. Crystal Payroll is already designed to handle hours-based leave, so if you’re looking for a system that always keeps pace with compliance, we’ve got you covered. 

Want to get ahead of the changes? Get in touch with us to chat about how we can help simplify your payroll.