Leave entitlements and accrual under 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).

In summary, annual leave and sick leave will both be earned, taken and paid in hours, accruing continuously from an employee's first day rather than arriving as lump sums on entitlement dates.
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This article covers how each will work, and the rules for when leave will keep accruing during unworked periods.

Under the Bill, statutory annual leave and sick leave will be described purely in hours, with no reference to weeks or days. Both will be earned, taken and paid in hours.

The concept of "entitled" and "non-entitled/accrued" leave will be removed.

Annual leave and sick leave will accrue continuously from the first day of employment, rather than arising as a lump sum after a set period. Balances will reflect the standard hours worked in the past, without any adjustment for increases or decreases in standard hours, so an hour of leave will keep its value regardless of later changes in working hours.

Annual leave will accrue at a minimum of 0.0769 hours for every standard hour worked, which for an employee whose standard hours do not change over a year will be the equivalent of four weeks.

Sick leave will accrue at a minimum of 0.0385 hours for every standard hour worked, up to a cap of 160 hours.

Example:

George, a bank worker who works 40 standard hours a week for his first year, then drops to 20 standard hours a week to start studying.

Under the current system, what a "week" of his four weeks' leave is worth changes with his pattern: four weeks taken in year one would be 160 hours, but the same four weeks taken after he moves to 20 hours a week would have become just 80 hours.

Under the new system, George will accrue 0.0769 hours for every standard hour he works, and his balance will not adjust when his pattern changes. He will accrue 160 hours over his first year, and once he moves to 20 hours a week his balance (assuming he has taken no leave) will stay at 160 hours and keep growing from there. His employer will not need to monitor and re-calculate his balance when his hours change.

Annual leave will accrue at a minimum of 0.0769 hours per standard hour worked, banked as it is earned.

The rights and obligations for taking annual leave are intended to align with the current position, adapted for the accrual system:

An employer will be able to require an employee to take annual leave up to their balance at their most recent start date anniversary if, after reasonable efforts, they cannot reach agreement about when it will be taken. The employer must give at least 14 days' notice in writing.

Annual leave will be taken against standard hours only, and can be used to take any part of a day off:

The maximum annual leave an employee can take will be the number of standard hours they otherwise would have worked, and the standard hours they may be required to work will be reduced by the hours taken as annual leave.

Annual leave will be paid using the single leave hourly rate (see the leave payments article).

Sick leave will accrue at a minimum of 0.0385 hours for every standard hour worked, during the same unworked periods as annual leave, up to a cap of 160 hours.

Once the cap is hit, new accrual will stop until the employee has used some of their stored sick leave. For someone working five days a week with the same hours each day, the rate is the equivalent of 10 days a year.

For every hour taken off, the employee will use an hour of accrued sick leave, and they can use it to take any part of a day off. Sick leave will be able to be taken against:

Sick leave will be paid using the single leave hourly rate (see the leave payments article).

Annual leave and sick leave will accrue when an employee is on paid leave, or on an unpaid absence under any legislation, including when on parental leave, jury leave and volunteers leave. This is effectively the same as the entitlements in the Holidays Act.

The exception is that leave will not accrue during a period an employee is receiving accident compensation. This differs from the current position and is easy to miss: an employee on parental leave will keep accruing, but an employee away on accident compensation/ACC will not.

Leave will not accrue on any hours of unpaid leave that is not provided for by legislation. The reason for an employee's unpaid leave remains important and relevant to make the correct decision on how leave accrual/entitlement is treated.

If an employee is on paid leave that is not provided for under any legislation (for example additional annual leave, long service leave, or a paid sabbatical), leave will accrue by default, but the employer and employee will be able to agree that the employee does not accrue annual leave and/or sick leave for that absence.

Leave will continue to accrue during parental leave, based on the employee's standard hours as at the point parental leave commences. The one exception is where, in the three months before parental leave starts, the parties agreed a temporary increase or decrease in standard hours (a temporary change being one in place for no more than three months), in which case accrual will be based on the standard hours before that temporary change. Annual leave taken after the employee returns from parental leave will be paid like leave taken at any other time (the current override that could reduce that pay will be removed, see the leave payments article).

The Bill deals with three situations:

Although leave will not accrue while an employee is on accident compensation, an employee will still be able to use leave they already have to top up their payments. If an employee does not work at all during a week in which they receive first week or weekly accident compensation, they will be able to agree with their employer to take:

The leave will be paid as if it were taken in any other circumstances. The intent is to let an employee top up accident compensation to roughly 100% of their usual earnings (it will not be exact, because the two payment calculations differ).

This will only be possible in a week the employee does not work at all, since accident compensation is abated by any amount they earn above 20% of their regular earnings.

A fixed term employee who has standard hours in their employment agreement will accrue, and be able to take, annual leave and sick leave on those hours from the first day of employment (with annual leave still subject to the normal grounds for declining a request). If they do not take the annual leave they have accrued during their fixed term, it will be paid out at the end of employment, including where the employment is for a single pay period.

This is a significant change from the current position, where a fixed term of less than 12 months can be paid annual leave on a pay-as-you-go basis. If a fixed term employee does not have any standard hours, or works additional hours, they will receive the Leave Compensation Payment (LCP) in relation to all of those casual or additional hours.

Casual hours will not accrue annual or sick leave. Instead, the LCP will be paid on those hours (see the leave payments and LCP article for how it will be calculated).

Casual employees will still be able to access bereavement leave and 10 days of family violence leave from their first day of employment, the same as any other employee, since those entitlements will apply to all employees regardless of the type of hours they work.

In each 12 month period, starting on the employee's start date anniversary, an employee will be able to request to cash up a maximum of 25% of their annual leave balance, as calculated at the date of that anniversary. An employee will not be able to cash up any annual leave in their first 12 months of employment. Only the amount that can be cashed up is proposed to change, not the process for agreeing it.

MBIE's examples: an employee with 280 hours accrued at their 12 month anniversary could cash up a maximum of 70 hours in the next 12 months; an employee with 60 hours accrued at their anniversary could cash up up to 15 hours.

A cash up must be requested by the employee in writing. An employer cannot require an employee to cash up. The employer does not have to agree, but if they do, they must agree in writing and must tell the employee their decision within 14 days of receiving the request.

The minimum rate for each hour cashed up will be the lowest wage rate payable under the employee's agreement as at the date the cash up request is made (or, for a salaried employee, the salary attributable to one standard hour as at that date). It will not be day-specific. Piece rate workers will also get an hourly average of piece rates (using the 93 days before the relevant pay period), and piece rate or commission workers will be paid no less than the minimum wage per hour. Fixed allowances will not be added, since the employee will have received those in full while working.

Between the new Act coming into force and an employee's first start date anniversary under it, an employee may request (and an employer may agree) to cash up a maximum of 25% of the hours of their converted "Type A previous annual holidays."

Any annual holiday weeks the employee had already cashed up since their last annual holiday entitlement arose under the current Act will be converted to hours and subtracted from that amount.