Understanding the New Employment Leave Act: Part One – The Impact on Annual Leave Entitlements

The way employees earn and use their leave will change significantly when the new Employment Leave Act comes into force in 2028. This new legislation reshapes leave entitlements, affecting both employers and employees. Understanding these changes is essential for managing time off fairly and efficiently. This article explains the key points of the new Act in respect to how annual leave accrual will work and what it means for taking annual leave.

Other leave types will be covered in subsequent blogs.

How Annual Leave Entitlements Generally Work Now

Currently, leave entitlements often followed a fixed schedule. Employees earn a set number of leave days per year, usually based on their length of service. For example, a full-time employee currently earns a minimum of 20 days of annual leave after completing a full year of work. Leave is typically taken in half, full, or multiple blocks of days, and unused leave, subject to the terms of the employment agreement, can be carried over and employees could apply for up to one week of annual leave to be paid out.

The new Employment Leave Act changes how leave will accrue and how it can be taken.

Key Changes in Annual Leave Accrual

The new Act introduces a more flexible and transparent way to accrue leave. Annual leave will accrue continuously based on the actual standard hours worked.  The employee can also use that leave as it accrues, subject to the terms of their employment agreement and/or company policy. This means leave builds up gradually, allowing for more accurate tracking and employees don't need to wait a year before taking their leave.

When the Act comes into force, any annual leave employees have under the current Holidays Act will convert over into the new system so there is no loss of leave entitlements.

Continuous Accrual

Leave entitlement will accrue on an hourly basis for permanent full-time and part-time employees. For example:

• An employee earns leave based on their standard hours of work at a rate of not less than 0.0769 hours per hour or part hour.

• For someone who works 37.5 standard hours a week their leave accrual would be equivalent to 2.8835 hours (37.5 x 0.0769) per week.

• For someone who works 20 standard hours a week their leave accrual would be 1.538 hours (20 x 0.0769) per week.

  
  

Standard Hours

Standard Hours are those hours the employer requires the employee to work and for which they will pay the employee, regardless of whether the employer in fact requires the employee to work those standard hours.  Standard Hours includes any breaks (meal or rest breaks) for which the employee is entitled to be paid.  If the employment agreement states meal breaks are unpaid, then meal breaks are not included in Standard Hours.

You need to understand that Standard Hours will also include hours that would have been standard if the employee had NOT been on paid leave, including leave taken under any other legislation or leave, or absence, if the leave, or absence, is not provided under this or any other legislation and the employer pays the employee while on that leave, or absence.

Standard Hours will include unpaid leave, or unpaid absences, from work under other legislation such as jury service, parental leave, territorial / volunteer leave.

Additional hours are any hours in addition to the employee’s Standard Hours that the employer is not required to make available to the employee and that the employee has the right to refuse; and that the employee works; and for which the employer must pay the employee an additional payment; or for any hours that the employee works under an availability provision. 

Such additional hours will be compensated by an Leave Compensation Payment (LCP) at a rate of not less than 12.5% of the employee’s ordinary hourly rate for each relevant hour or part hour worked in addition to Standard Hours.

For example; Tim's hourly rate is $30/hr. He works 20 standard hours plus 5 additional hours in a week. Tim will accrue 1.538 hours of annual leave for the 20 standard hours and receive an LCP of $18.75 for the five additional hours. (Calculated at 5 x $30x12.5%.)

Carry-Over of Annual Leave

Untaken annual leave carries over from one year to the next and remains an entitlement until the employee either takes their leave or it is paid out in accordance with the Act.

Casual Workers

Casual employees will continue to be paid for their annual leave on a “pay as you go” basis, however the accrual will be compensated at an LCP rate of not less than 12.5% of the employee’s ordinary hourly rate for each relevant hour in that pay period and this payment is in addition to any other payment the employer is required to pay to the employee for the pay period. (e.g. allowances, productivity-based or incentive payments, which includes commission payments.)   Note: This 12.5% LCP rate also includes compensation for sick leave.

How Annual Leave Can Be Taken Under the New Act

The new legislation also changes how employees will be able to take their leave, aiming to make the process more flexible and employee friendly.

Flexible Leave Scheduling

Employees will be able to  request annual leave in smaller blocks, such as half-days or even hours, depending on the employer’s policies. This flexibility should help employees balance their work and personal commitments better.

It is important to note that the employee will be able to take, as annual leave, any of their standard hours specified in their employment agreement.

Employer’s Role in Approving Annual Leave

Employers must consider leave requests fairly and cannot unreasonably refuse them. The Act encourages open communication between employers and employees to plan leave effectively.

An employee and their employer must make all reasonable efforts to agree when the employee will take annual leave.  The employer must not unreasonably withhold their consent to the employee taking their leave.

Where the employee and employer are unable to agree on when the employee will take their leave, the employer can tell the employee when to take their leave. However, the employer MUST give the employee no less than 14 days' notice of the requirement to take annual leave. In requiring the employee to take leave, the employer may only direct the employee to take some or all of the leave that was the employee's leave balance as at their most recent start date anniversary.

This means the employer cannot direct the employee to take leave that has accrued since their most recent anniversary date.

Cashing Up Leave

The new Employment Leave Act will continue to allow employees to cash up some of their annual leave entitlement.

In each 12-month period starting on the employee’s start date anniversary, the employee may request to cash up 25% of the amount of the annual leave in their annual leave balance, as at the end of the day before their last start date anniversary.

The employee must put their request to cash up annual leave in writing, and the employer has 14 days within which to consider and advise the employee if they agree to the request. Where the employer does not agree to the request, they will not be required to give a reason for declining the request.

Under the new Transitional Matters

The new Employment Leave Act will apply from an existing employee’s first pay period that starts after the commencement date.

The employer must ensure that their employment agreements are updated and comply with the Act within one year of commencement of the Act.

Next step: Employers have time to review their employment agreements and company policies however should not leave it to the last minute as you will need to ensure they align with the new Employment Leave Act when it comes into force in 2028. Open dialogue between employers and employees will make the transition smoother and support a positive workplace culture.

Disclaimer: This blog does not touch upon every aspect of the new Act as it applies to Annual Leave and is only presented to give a better insight to the changes that will apply when the legislation comes into force in 2028. This blog provides general information about the new Employment Leave Act and does not constitute professional or legal advice.