Leave Payments in the Employment Leave Bill

This describes the new Employment Leave Bill, not the rules that apply today. This comes into force on 6th August 2028. Until it comes into force, the current Holidays Act 2003 still governs all leave (see our current leave articles).
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In short: The Bill will replace the current mix of leave pay calculations: average weekly earnings (AWE), ordinary weekly pay (OWP), relevant daily pay (RDP) and average daily pay (ADP), with a single hourly leave rate used for every leave type.
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Alongside that, a new Leave Compensation Payment (LCP) will be paid on casual and additional hours instead of those hours accruing leave. This article covers how both will be calculated.

The same hourly leave pay rate will be used for all leave types: annual leave, sick leave, bereavement leave, family violence leave, non-worked public holidays and alternative leave.

How the rate will be set depends on how the employee is paid.

The leave hourly rate will be the lowest hourly rate payable under the employment agreement for the day on which the leave is taken. For this purpose, a continuous work period that begins on one calendar day and finishes on the next will be treated as one day.

Penal rates (overtime, night, weekend rates) will only be reflected if they apply to a whole day:

Examples:

The leave hourly rate will be the amount of salary attributable to one standard hour of work (an employer might calculate this by dividing the annual salary by the annual number of standard hours). The salary amount will include any compensation paid as part of normal salary for hours the employee must be available to work under an availability provision, but because those aren't standard hours, they won't be included in the divisor.
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An ASE is a salaried employee paid the same amount each pay period but whose standard hours differ between periods (for example, a monthly paid employee paid on average monthly hours, or someone on a four on, four off roster). For ASEs:

The leave hourly rate will be their leave hourly rate (their lowest hourly wage rate that would otherwise apply on the day, or salary attributable to one standard hour) plus an hourly average of piecework wages. The hourly average will be calculated from all piecework wages paid in the pay periods starting in the 93 days before the start of the pay period in which the leave is taken (calculated pay-period by pay-period if the leave crosses pay periods). The divisor will be the number of hours the employee actually worked in those pay periods, excluding hours they were on paid leave, since piece rates wouldn't have been paid for those, so a short work history won't distort the average.

The leave hourly rate won't include any productivity or incentive based payments, including commission. Employees paid wholly or partly by commission will be paid the lowest hourly wage rate that would otherwise apply on the day of leave (or salary attributable to one standard hour).

For anyone paid wholly or partly by piece work or commission whose leave rate would come out lower, the leave payment will be no less than the minimum wage for each hour of leave.

"Fixed" allowances will continue to be paid in full during any period of leave (and when an employee doesn't work a public holiday that's an OWD), exactly as if they were working. This is on top of the leave hourly rate, which won't itself include allowances.

A fixed allowance will be defined as one that, under the employment agreement, the employer must pay and that doesn't vary in value (whether payable each pay period or on another basis, such as quarterly or yearly). The exception is any allowance that reimburses an expense the employee incurs while working but not while on leave.

Employers and employees will also be able to agree to include other allowances in leave payments.

All the averages in the Bill (including the hourly average of piece rates, the hours of an OWD, and the transitional conversion formulas) will use the same reference period: the pay periods starting in the 93 days before the start of the pay period in which the relevant day falls. Only whole pay periods will be included: 13 for weekly pay, 6 for fortnightly, 3 for monthly. If the employee has worked fewer than 93 days, the reference period will run from the start of employment to the end of the pay period before the relevant one.

All leave payments will be calculated and paid in the pay period the leave is taken, and the rate may differ between pay periods (including across a continuous period of leave that spans pay periods). For annual leave, employers and employees will be able to agree that payment is made before the leave is taken. The Holidays Act currently states that the default is to pay before the employee takes annual leave, but they may choose to pay it during the period of leave. This is because the Holidays Act pre-dates modern payroll practices (payroll software and payments disbursement).

For annual leave or alternative leave that's cashed up, or not taken when employment ends, the minimum rate for each hour will be the lowest wage rate payable under the agreement as at the date the cash-up request is made or employment ends (or, for a salaried employee, salary attributable to one standard hour as at that date). This rate won't be day specific, since it isn't tied to a particular day. Piece-rate workers will still get an hourly average of piece rates (using the 93 days before the relevant pay period).

Fixed allowances won't be added to these payments (the employee will already have received them while working), and piece-rate or commission workers will be paid no less than the minimum wage per hour. Untaken sick leave won't be paid out at the end of employment, same as now.

These will stay days based but be payable in whole or part days, in direct proportion to the hours the employee would have worked (per their agreement or roster) and those same hours will be the basis of the payment, using the single leave hourly rate.

For each additional or casual hour of work, the LCP will be calculated as 12.5% of the employee's ordinary hourly rate, paid instead of that hour accruing annual and sick leave entitlements.

The ordinary hourly rate will be defined as the lowest wage rate specified in the employment agreement for an hour of work (for a waged employee), or the salary attributable to one standard hour (for a salaried employee; for an ASE, the annualised hourly rate). For an employee paid wholly or partly by piece rates, the ordinary hourly rate will also include an hourly average of piecework wages, calculated the same way as for leave payments.

If an employee already receives overtime, night, weekend or other penal wages for an additional or casual hour, the LCP will still be paid on their ordinary hourly rate, and those contractual payments will continue separately. For example, if someone's ordinary wage is $30 per hour and they're paid $60 (T2/double time) for hours beyond 40 a week, each additional hour will earn $60 plus a separate LCP of $3.75 (12.5% of $30).

The LCP won't be paid to a salaried employee for hours worked over their standard hours that are compensated by their salary, as those won't be additional hours, and leave won't accrue on them either (their leave hourly rate will already reflect that salary compensation). But if a salaried employee works extra hours they receive additional wages for, those will be additional hours and the LCP will apply.

"Employment agreement," for the standard-hours definition, will mean the most up-to-date documentation of someone's hours. That means the agreement itself, a letter of offer, additional terms, or any later variation. If a variation agreement temporarily increases an employee's required hours (say, for a busy period), those will be standard hours for the period it covers: leave will accrue on them and the LCP won't apply. The employee's leave balances won't reduce back when the variation ends, an accrued hour of leave will keep its value.

The Bill sets clear liability rules:

Under the current rules, a special "override" applies to the normal annual leave payment rules for leave an employee becomes entitled to during, or in the 12 months after, parental leave. When they take that leave, they are paid only at the rate of their average weekly earnings for the preceding 12 months, without the usual comparison to ordinary pay. Because that 12 month period includes time the employee was not working (and so not earning), the average can be very low. The practical result is that someone who takes annual leave soon after returning from parental leave often ends up paid far less than they would be for the same leave at any other time.

The Bill will remove this override. Annual leave taken after an employee returns from parental leave will be paid like leave taken at any other time, using the standard leave hourly rate. On top of that, employees will continue to accrue leave during parental leave (see the accrual article), so returning parents will not be penalised on either the amount of leave they have or the rate it is paid at.