The Employment Leave Bill has now passed its first reading and looks likely to become law later this year. It is well overdue and questions should be asked about why it has taken so long to get to this point.
For years, businesses, employees, and payroll professionals alike have struggled to grapple with legislation that is, by almost universal agreement, outdated and unnecessarily complex.
Even well-resourced employers have struggled to interpret entitlements correctly, and smaller businesses have been left exposed. This has come at a heavy cost for many employers who in some cases have spent millions of dollars correcting historical payroll errors.
Workplace Relations Minister Brooke Van Velden has said that the current Holidays Act is “complex, confusing and has led to huge remediation costs.”
The Bill seeks to fix this by fundamentally reshaping how leave is earned, calculated, and paid. It appears to be surprisingly simple, possibly deceptively so.
Entitlements will remain largely the same, but they will be recorded and taken primarily in hours to standardise and simplify the calculation, especially for employees with variable work patterns.
Under the new framework, annual leave will accumulate from the first day of employment at a fixed rate tied directly to hours worked.
In contrast, the existing system is based on “weeks” of annual leave and therefore requires complex calculations of “average weekly earnings” and “ordinary weekly pay”. This has long been problematic as leave is often not taken by employees in full weeks.
Sick leave will follow the same logic, accruing progressively from the start of employment rather than appearing as a fixed amount after six months.
The Bill also proposes pro-rating entitlements more strictly for part-time workers. Instead of receiving the same number of sick days as full-time employees, part-time workers will accrue leave based on the hours they actually work.
While this may appear fair in principle, it will result in a tangible reduction in entitlements for many workers who currently benefit from the existing system.
For casual employees, the changes go even further. A new “leave loading” or compensation payment is set at around 12.5% of wages on additional and casual hours worked in each pay period. This will increase the cost of doing business for employers who use casual staff.
Other technical changes aim to tidy up long-standing grey areas.
The “otherwise working day” test for public holiday entitlements will be clarified and based on whether an employee has worked that day of the week regularly over the previous 13 weeks.
Bereavement and family violence leave will also begin accruing from day one of employment, removing the current waiting periods.
Additionally, employees will not accumulate leave while receiving ACC compensation or during unpaid leave, a change framed as fairer for employers.
The Bill also proposes to address the issues that arise for employees who work in multiple roles with the same employer, by treating each role as separate, for the purposes of leave entitlements.
Taken together, these amendments demonstrate the purpose of the Employment Leave Bill to simplify and standardise. It appears to achieve this objective by constructing a fairer system based on hours worked, applied consistently across different types of employment.
The clarity has obvious appeal; it promises fewer payroll errors, lower compliance costs, and greater confidence for businesses trying to do the right thing.
But critics have already pointed out that there will be winners and losers.
Part-time and casual workers, in particular, may find themselves with reduced entitlements and with greater reliance on upfront payments as compensation for the lack of actual available paid leave.
Further, businesses that have only recently come into compliance with the current law may now face another round of system changes, retraining, and costs.
Reform may promise long-term relief, but in the short term, it will present its own challenges.
To smooth this transition, the Bill allows for a 24-month implementation period to enable businesses to update payroll systems, policies, and employment agreements.
None of this is to say the reform is misguided. The status quo is clearly not working.
When legislation becomes so complex that widespread non-compliance is the norm, change is not optional, it is necessary. The sooner the better in this case.
Originally published in The Post
