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).
The new leave system will define three types of hours (standard, additional and casual), and which type an employee works will decide whether they accrue leave or receive the Leave Compensation Payment (LCP), and which hours they can take leave against. Where an employee has standard hours but no fixed pattern, a notional roster will fill in the gaps. These are new concepts that the current Holidays Act does not use, so this is worth getting familiar with early.
Why this matters so much
There has been a belief that because the new leave rules accrue based on hours worked (rather than weeks like the current annual leave system) that defining 'standard hours' won't be as important for an employee. On the contrary - if anything, it becomes far more important, because there is such a strong line of what happens with different hours types.
Standard hours will accrue annual and sick leave, while additional and casual hours will attract the Leave Compensation Payment (LCP) instead. The hour types will also be central to the rules for taking annual leave, sick leave, bereavement leave and family violence leave.
The three types of hours
The Bill will include definitions of each type of hour. These definitions will be specific to the Employment Leave Bill.
Standard hours
Standard hours will be the hours an employee is required to work under their employment agreement and that an employer must pay them for. Paid breaks will also count as standard hours. Standard hours will not include hours that fall under an availability provision in the employee's agreement.
Additional hours
Additional hours will be the hours an employee works on top of standard hours, where all of the following apply:
the employer is not required to make the work available; and
the employee has the right to refuse it; and
the employer must pay the employee an additional payment for it (which may be at the same rate as, or a different rate to, a standard hour).
Hours an employee is required to work under an availability provision, and receives an additional payment for, will also be additional hours. However, hours a salaried employee works under an availability provision that are compensated by their salary will not be additional hours, so leave will not accrue and the LCP will not be paid on them.
Casual hours
Casual hours will be all hours worked by an employee whose employment agreement does not require the employer to offer them any work and does not require them to accept any work they are offered. An employee will not be able to have both standard hours and casual hours in the same role.
When the lines blur, and when hours change
The boundaries can shift over time
Standard hours will be those an employee is required to work, and must be paid for, under their agreement. If, over time, a mutual commitment to offering and accepting work develops beyond what is written in the agreement, the boundary between standard, additional and casual hours may stop being clear.
The best way to stay compliant (with the new leave legislation and other legal obligations now) will continue to be regular engagement with employees to check that what is written in the agreement accurately reflects their actual work arrangements. Employers will also need to keep records, setting in payroll ongoing basis, so they have the information they need (such as the employee's current number of standard hours) to provide and pay leave correctly. A "set and forget" or "one size fits all" approach to payroll will continue to carry a high risk of non-compliance. Getting hours captured, recorded and tracked correctly is very important.
Worked example: a salaried employee who works fewer hours than they are paid for
Consider a salaried employee whose agreement requires 37.5 hours per week (including two paid 10 minute rest breaks each day), worked as 7.5 hours a day over 5 days, with a 30 minute unpaid break each day.
Their salary compensates them for 40 hours. If they work up to 40 hours in a week they receive no additional payment, and if they work over 40 hours they receive overtime wages.
The intent will be that 37.5 hours are this employee's standard hours, being the hours they are required to work and must be paid for. The extra 2.5 hours compensated by salary will be provided under an availability provision, so they will be neither standard hours nor additional hours. The employee's leave accrual, their taking of leave, and their hourly leave pay rate will all be based on 37.5 hours (and the hourly leave rate will be the salary amount, including the compensation for the 2.5 hours, attributable to one standard hour of work).
Time off in lieu (TOIL)
If an employee works extra hours but is given TOIL rather than being paid, they will be unpaid at the time and will receive no additional payment, so those hours will not meet the definition of additional hours, and the LCP will not be payable on them. The intent will be that TOIL hours are treated as standard hours at the time they are taken, since that is when the employer is required to pay them, and annual and sick leave will accrue on the hours at that point.
Temporary increases in hours
For the standard-hours definition, "employment agreement" will mean the most up-to-date documentation of the employee's hours (the agreement itself, a letter of offer, additional terms and conditions, or any later variation). If an employer and employee agree a variation that temporarily increases the hours the employee is required to work and be paid for (for example, to cover a busy period or a project), those hours will be standard hours for the period the variation covers. Leave will accrue on them, and the LCP will not apply. The employee's leave balances will not reduce back when the variation ends, because an accrued hour of leave keeps its value regardless of later changes in hours.
Notional rosters
A notional roster will fill in the gaps where an employee has standard hours but their agreement does not spell out the pattern, so leave can be accrued and taken against something concrete.
When one will be required
Where an employee has standard hours under their agreement, but the agreement does not specify one or more of:
the number of the employee's standard hours (for example, for some salaried employees);
the days of the week those standard hours are worked; or
the hours worked on each day,
The employee and employer must agree a notional roster in writing at the time the employment agreement is entered into. The notional roster must include whatever of the above cannot be determined from the agreement.
What notional rosters will be used for
Notional rosters will be used, as relevant, for determining annual and sick leave accrual, and for determining when annual leave, sick leave, bereavement leave and family violence leave can be taken.
If a work roster setting out when standard hours would be worked is already in place at the time of a leave request or notification, that actual roster will be used instead of the notional roster.
Notional rosters not used for public holidays
Notional rosters will not be used to determine entitlements to public holidays or alternative leave. That will be done through the Otherwise Working Day test. The reason is that public holiday dates are always known in advance, which could make it hard for the parties to agree the days in a notional roster, or could leave it open to manipulation.
Kept up to date
Employers and employees must keep a notional roster up to date. It will need to be updated if the number of standard hours in the employment agreement changes and the days and times in the notional roster no longer align. It should also be updated if the days and times specified in it are no longer an accurate reflection of when the employee actually works. The 13-week period used for Labour Inspector determinations is also intended as a guideline for employers and employees when assessing whether a notional roster should be updated. If standard hours vary seasonally under the agreement, different notional rosters for different times of year can be agreed up front, which will reduce the need for updates during employment.
Example 1: a fixed pattern notional roster
Priya will be employed for 20 standard hours a week, but her employment agreement will not say which days she works them or how many hours she works on each day. When she signs her agreement, Priya and her employer will agree a notional roster of 8 hours on Monday, 8 hours on Tuesday, and 4 hours on Wednesday.
That notional roster will then be used to work out how much leave Priya takes against a given day when no actual work roster is in place. If Priya requests annual leave for a Monday and no work roster has been set for that week, she will take leave against the 8 standard hours in her notional roster for that day. If she takes the Wednesday off, it will be 4 hours. If an actual work roster has already been set for the week she wants leave, that real roster will be used instead of the notional one.
Example 2: a methodology based notional roster
Sam will have 15 standard hours a week, but the days and the hours on them will move around from week to week, so tying them to fixed days would not reflect how he actually works. Instead of a fixed pattern, Sam and his employer will agree a notional roster that sets out a method for working out his standard hours each time he takes leave. The method is for the parties to agree (for example, they might agree to base a day of leave on his average daily standard hours over a recent period). Whatever they settle on, that agreed method will be applied when Sam takes leave, and again only when no actual work roster is already in place for that period.