Holidays Act reform: change is as good as a holiday?

5 June 2024

Today, the Minister for Workplace Relations and Safety, the Honourable Brooke van Velden, made a significant announcement regarding the reforms to the Holidays Act 2003 (Holidays Act). The proposed changes aim to enhance the simplicity and workability of the current legislation. Please see here for the full announcement. 

In summary, the Minister’s announcement confirmed that an exposure draft Bill, which will serve as a consultation document before the Bill is formally introduced in Parliament will be released for targeted consultation in September 2024. The draft will outline the proposed amendments to the Holidays Act. 

The Ministry of Business, Innovation and Employment (MBIE) indicates that the exposure draft Bill will include:

  • A proposed approach to pro-rating sick leave (based on how much an employee works). Under the current Holidays Act, all eligible employees (whether part-time or full-time) receive 10 days’ sick leave in each entitlement year. In other words, this entitlement is not currently pro-rated. 
  • Annual holidays would move from an “entitlement system” to an “accrual system”. Currently, annual holidays do not “accrue”; rather, eligible employees only become “entitled” to annual holidays after reaching their anniversary date (and each 12-month period thereafter). The “entitlement system” can be problematic from a payroll perspective as many payroll software providers carry out an accrual process.
  • Easier methodologies for calculating leave that do not require payroll systems to rely on data regarding an employee’s daily hours of work.
  • “Objective criteria” for using pay-as-you-go (PAYG) annual holidays. At a high-level, PAYG involves paying an employee 8% of their gross earnings along with their regular pay instead of providing that employee with an annual holiday entitlement.  Currently, an employer can only apply the PAYG approach in limited circumstances (including if the employee is truly “casual” or for employees who are employed on a fixed-term basis for less than 12 months, subject to other specific criteria).
  • A clarification that only “full pay periods” are to be included in a proposed new 13-week reference period (which would be used for calculating “average weekly pay” for annual holiday calculations). 

MBIE is now asking for expressions of interest from members of the public to be part of the targeted consultation regarding the exposure draft of the Bill. If you are interested in being part of this consultation, you can access the link here for further information. Parties must register their interest by 8 July 2024.

After targeted consultation with stakeholders, the Government will consider whether any further changes are required before introducing a Bill to Parliament. 

We will keep you updated regarding this significant potential reform as it develops.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.