New Zealand mulls changes to annual, sick leave entitlements

Government wants feedback on accrual system for annual leave, pro-rated approach for sick leave

New Zealand mulls changes to annual, sick leave entitlements

The New Zealand government is proposing changes to offered annual and sick leave entitlements by employers in an exposure draft coming this September.

The exposure draft will be used to pool feedback on the government's proposed changes to the Holiday Act, which it pledged to overhaul early this year.

"Change has been a long time coming, and I know there are many who are frustrated with the Holidays Act. We need an Act that businesses can implement, and that makes it easy for workers to understand their entitlements. We need to do this once and do it right," Workplace Relations and Safety Minister Brooke van Velden said in a statement.

Annual, sick leave proposals

But van Velden added that the exposure draft will also contain proposed changes to how the annual and sick leave entitlements are offered.

This includes moving to an accrual system for how the annual leave is provided.

"Shifting to an accrual system for annual leave entitlements is just common sense. While workers might not notice any change in their entitlements, from a payroll perspective this should make a huge difference," Van Velden said.

"An accrual system should help avoid the complex calculations that regularly stump payroll software and should therefore reduce compliance costs for employers."

The government will also explore a pro-rated approach to sick leave.

"Workplaces that rely on part-time workers are particularly vulnerable to unexpected staffing shortages. To explore this issue further, the exposure draft set for consultation will include a proposed approach to pro-rating sick leave, to better reflect how much an employee works," the minister said.

Employers welcome proposed changes

The exposure draft will be released for consultation in September 2024, but employers have already indicated strong support for the proposed changes to leave entitlements.

Business NZ chief executive Kirk Hope said a system of pro-rating sick leave was "sensible."

According to Hope, Business NZ collaborated with officials, businesses, and employees to provide advice on potential changes to the Holidays Act, as well as shifting to an accruals-based system or implementation.

The Employers and Manufacturers Association (EMA) also said they are looking forward to working with the government on fixing the Holidays Act.

"Everyone knows the Holidays Act is broken. It is so complex that businesses are struggling to understand their obligations, resulting in ongoing miscalculations and unintentional errors," said EMA Head of Advocacy Alan McDonald in a statement.

The association also "strongly supports" an accrual system for annual leave."

"While most workers won’t notice any change in moving to an accrual model, it will make the calculation of leave entitlements much simpler and reduce the risks of the unintended errors that we have seen in recent years," McDonald said.

He added that a pro-rated approach for sick leave will make the system "fairer."

"If you work one day a week, you should not have the same sick leave entitlement as someone who works five days a week," the EMA official said.

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