Holidays Act reform

Next steps

The Government is aware of issues with the Holidays Act and that these have been a longstanding concern for workers, employers and payroll providers. Resolving these issues is a priority for the Government.

The Minister for Workplace Relations and Safety has announced that an exposure draft of a Bill that will implement reforms to the Holidays Act will be released for targeted consultation in September 2024.

The Government has agreed that the exposure draft of the Bill will include some changes and additions to the previous Government’s decisions on the reform of the Act.

An exposure draft is a version of a draft Bill that is released by a government agency for public consultation before the Bill is introduced to Parliament. Releasing an exposure draft is a different process from the release of a Bill by a Select Committee for public consultation. This will still happen once a Bill is introduced.

This main focus of the changes is simplifying calculations and reducing the cost to employers of implementing them. The exposure draft will include (along with other changes):

• a proposed approach to pro-rating sick leave so that there is some proportionality to how much an employee works;
• moving from a weeks-based entitlement system to a weeks-based accrual system for providing annual leave entitlement;
• simpler methodologies for calculating use of leave that do not require pay systems to access data about daily hours of work;
• objective criteria for using pay-as-you-go for annual leave and a less burdensome review process; and
• clarification that only full pay periods need to be included in 13-week reference periods.

Read the Minister’s announcement:

Progress for fixing the Holidays Act 2003(external link) — Beehive website

The purpose of the targeted consultation is to test both the technical and policy details of the Bill with stakeholders. Based on feedback provided, the Government may consider further changes before it introduces a Bill to Parliament.

Register your interest in being part of the targeted consultation

MBIE is inviting stakeholders to participate in the targeted consultation on the exposure draft of the Bill who:

• have expertise in implementing the Holidays Act in payroll and business systems; and/or
• understand the impacts and outcomes of the Act for various groups of employers and/or employees.

We want to make sure we include stakeholders who represent the range of groups who will be affected by the legislation. This includes employers and employees from various sized businesses and with various working arrangements, payroll providers and practitioners, and legal experts.

What will participating in the exposure draft consultation involve?

In September 2024 MBIE will send consultation participants the exposure draft of the Bill to review along with a consultation document and a response form for providing feedback.

The consultation document will help to explain each area of the Bill and include targeted questions where the Government specifically wants to test the policy and/or technical details.

We’ll also be looking for feedback on the implementation requirements and compliance costs of the proposed changes.

What will happen after you complete the registration of interest form?

We understand that consultation participants will need to plan for reviewing the Bill and preparing feedback. To provide time to do this, we will contact everyone who registers interest in early August 2024 with more information about the next steps and what you can expect.

Depending on how much interest there is, we may need to select a representative sample of stakeholders to be part of the consultation.

We want to hear from as many people as possible but this will help us make sure that we can review and consider all feedback.

Employers’ obligations remain

Until any changes to the Holidays Act go through the parliamentary process and come into force, all of the existing rules still apply. This means that employers still need to comply with the current Holidays Act, and ensure they are providing the correct entitlements and payments to employees.

Additionally, employers retain an obligation to remediate employees for historical underpayments that have occurred due to non-compliance with the current Holidays Act.

Read more about leave entitlements under the current Holidays Act(external link)  — Employment New Zealand

Who you can contact

If you have specific questions about the Holidays Act Review, email:

holidays.act.review@mbie.govt.nz

If you have questions about whether your current or former employer has calculated your leave payments correctly or if you believe you may be eligible for a remediation payment, contact your employer in the first instance.

Many employers have webpages about their Holidays Act remediation programmes which include contact details for employees.

If your employer is unable to answer your questions, if you have other questions about leave entitlements or payments, or if you wish to make a complaint about your employer, contact Employment New Zealand:

Send a query(external link)  — Employment New Zealand

Phone: 0800 20 90 20

Record of the work completed by the previous Government before the 2023 General Election

The purpose of the Holidays Act Review

The Government established the Holidays Act Taskforce to suggest improvements to the Holidays Act, following a joint request from unions and employers.

The Taskforce was asked to make recommendations on options for a clear and transparent set of rules for providing entitlements to, and payment for, holidays and leave.

The Taskforce’s objectives were to:

• recommend changes that address the high degree of ambiguity that has made the Holidays Act difficult to understand and implement for employers
• make it easier for employees to understand their entitlements.

The Taskforce’s recommendations

The Holidays Act Taskforce made 22 recommendations which were jointly agreed to by union and business representatives. The Government accepted the Taskforce’s recommendations.

The new legislation that will implement the Taskforce’s recommendations will provide clear methods that employers can use to accurately calculate and pay leave entitlements. It will also include some changes to employees’ leave entitlements and introduce greater transparency to ensure employees are fully informed about their leave entitlements.

The recommendations included:

Clear methods, formulas and tests

• New methods that employers must use to calculate the amount of leave entitlement an employee uses when they take leave. This will include a formula for calculating leave for employees with variable working arrangements.
• New leave payment formulas and definitions to provide greater clarity about what payments must be included in the calculations. This will include a new definition of gross earnings and a new Ordinary Leave Pay calculation to replace Ordinary Weekly Pay and Relevant Daily Pay. 
• New eligibility tests for Family Violence, Bereavement and Sick leave.
• A new ‘Otherwise Working Day’ test for determining days on which these entitlements apply. 
• A new test for when an employee may receive their annual holiday entitlement on a ‘Pay-As-You-Go’ basis and clear rules for reviewing whether it can continue to be used throughout the course of employment.

Increased access to some leave entitlements

• From their first day of employment, eligible employees will be entitled to bereavement leave and family violence leave, and to begin accruing sick leave. Other employees will be eligible after 3 months if they meet the new tests.
• Employees will be able to take annual holidays on a pro-rata basis in advance of their entitlement.
• Bereavement leave will be expanded so that employees can access 3 days of leave for more types of family members.
• Employees returning from parental leave will be paid according to the normal rules for annual holidays, rather than their pay only being based on their average weekly earnings over the last 52 weeks.

Greater transparency for employees

• New, clearer requirements related to the process for having a closedown period. 
• Additional record-keeping requirements to ensure employers have the data required to accurately complete the calculations and tests. 
• A requirement to provide a pay statement in each pay period to provide greater transparency about leave and pay for employees.

Read the Minister's announcement accepting the Taskforce’s recommendations(external link)

Read the full Holidays Act Taskforce final report [PDF, 1.4 MB]

Work progressed to implement the Taskforce’s recommendations

Detailed policy design work was completed

The Ministry of Business, Innovation and Employment (MBIE) has completed a policy design process to develop the details required to implement the Holidays Act Taskforce’s recommendations in legislation.

To support this process, MBIE brought together a working group of stakeholders including payroll system providers, payroll practitioners working in employer organisations, business, and unions.

The group contributed their insights into the practicalities of implementing the recommendations in payroll systems, and across a variety of complex employment environments.

Those insights informed some refinements to the Taskforce’s recommendations to address areas where the group identified gaps and opportunities for simplification

The objectives of the refinements were to help ensure the new rules and processes for calculating leave entitlements and payments are definitive, clear, and logical, can be systematised, and are workable in all employment situations.

All of those refinements were consistent with the intent of the Taskforce’s recommendations.

Drafting of a Bill began

Drafting of legislation to implement the Taskforce recommendations and refinements began before the 2023 General Election but a Bill was not introduced.

The Government considered it was important that time was taken to get it right first time in order to minimise the risk of implementation challenges and future compliance issues.

Implementation support for employees, employers and payroll providers

Once the Bill receives Royal assent, the Government intended there would be an implementation period before it came into force. This was to provide time for employers and payroll providers to understand the new legislation and how to comply with it and provide time for changes to payroll and other business systems to be made.

MBIE intended to begin publishing and disseminating general guidance for employees, employers and payroll providers as soon practical after Royal assent with further information and tools available prior to the Bill coming into force. Once the Bill was passed, MBIE will engage with stakeholders to ensure guidance and tools are fit for purpose.

During the implementation period, MBIE also intended to conduct a range of proactive activities to raise awareness of the new legislation, including through online communication channels and direct stakeholder engagement. 

Background documents

Establishing the Taskforce

(The Minister for Workplace Relations and Safety made a minor amendment to paragraph 9 of the terms of reference.)

Holidays Act Taskforce members

The table below outlines the individual members of the Holidays Act Taskforce and which organisation they were representing.

Holidays Act: Issues paper

In August 2018, the Taskforce published an issues paper that set out its understanding of the key issues that employers, employees, and payroll providers face in trying to implement the Holidays Act 2003. The Taskforce considered feedback from stakeholders on the issues paper as it developed its final recommendations.

Interim report from Holidays Act Taskforce

In December 2018 the Taskforce provided an interim report to the Minister for Workplace Relations and Safety on progress with the review of the Holidays Act.

Accepting the Taskforce’s recommendations