Converting leave balances for the new leave framework

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).

At commencement, the leave people have built up under the current Holidays Act will be converted from weeks and days into hours, using formulas in the Bill. Those converted hours will become the opening balances under the new Act and will then be treated as if they were accrued under it.

At commencement of the new Act, employers will convert existing untaken (and un-cashed up) leave into hours. The method will differ by leave type and by whether the employee works standard hours or casual hours, which the sections below set out.

Employers will apply the new Act, and will need the conversions completed, from the start of the first pay period that starts after the commencement date.

This is deliberate: it prevents the new Act from taking effect part way through a pay period. So for most employees, even though the commencement date will fall mid pay period, the switchover point will be the start of their next pay period.

For all employees who work standard hours, employers must convert existing annual holidays that the employee has not taken or cashed up, from weeks to hours. The Bill splits this into two categories.

Type A previous annual holidays will be annual holidays that have already arisen as entitlements under the current Act, after each completed 12 months of continuous employment.

To convert them, an employer will multiply the number of whole or part weeks of annual holiday the employee has become entitled to by the employee's ordinary weekly hours. All leave taken (including leave taken in advance) and cashed up leave will be subtracted from the number of Type A weeks (and not from Type B). This means that if an employee has taken leave in advance, their Type A balance can be negative.

Type B previous annual holidays will be annual holidays that have not yet arisen as entitlements, but that the employee has earned in proportion to the time worked since their last four week entitlement arose (or since they started). If employment ends, the employee is entitled to be paid for these. To convert them, the Bill will provide a formula for the proportion of the four week entitlement the employee has earned since their start date or their last entitlement, and that proportion will be multiplied by the employee's ordinary weekly hours.

Ordinary weekly hours will be the number of standard hours the employee's agreement specifies they work per week (or, if standard hours are not the same each week, the average per week over their work cycle). If the agreement does not specify standard hours, ordinary weekly hours will be either the number of standard hours in the employee's notional roster, or, if the notional roster does not include a number of standard hours at commencement, the average hours the employee has worked (or been on paid or unpaid leave) per week over the pay periods starting in the 93 days before the first day of the first pay period that starts after the commencement date.

For all employees who work standard hours, employers must convert existing untaken sick leave from days to hours. Again there are two categories.

Type A previous sick leave will be the entitlement to 10 days' sick leave (which can be capped at 20 days) that has arisen after six months' current continuous employment and is renewed after each subsequent 12-month period. To convert it, an employer will multiply the number of days of sick leave the employee had become entitled to by the employee's ordinary daily hours. All sick leave taken (including sick leave taken in advance) will be subtracted from the number of Type A days.

Type B previous sick leave will be sick leave that has not yet arisen, but that the employee has earned in proportion to the time worked since their last 10-day entitlement arose (or since they started). The Bill will provide a formula for that proportion, multiplied by the employee's ordinary daily hours.

Ordinary daily hours will, for all employees, be based on the average number of hours the employee has worked (or been on paid or unpaid leave) per day of work or paid or unpaid leave, over the pay periods starting in the 93 days before the first day of the first pay period that starts after the commencement date. The average calculation applies to everyone, but where an employee has the same number of standard hours on each day of work and does not work additional hours, the result will simply match the daily hours stated in their agreement.

For all employees, employers must convert existing alternative holiday entitlements that the employee has not taken or cashed up, from days to hours. An employer will multiply the number of days of alternative holidays the employee was entitled to under the current Act by the employee's ordinary daily hours.

The conversion of annual and sick leave applies to employees who work standard hours. For employees who work casual hours, the treatment at commencement will be different: existing entitlements to annual holidays will be paid out, sick leave will not be converted or cashed up, and alternative holidays will be converted.

The Bill will define an employee's annual leave, sick leave and alternative leave balances (which form part of the Leave Record) to include the hours converted from their existing week- or day-based entitlements. For annual leave and sick leave, that includes both the Type A and Type B amounts.

The converted hours will form the opening leave balances under the new Act, representing all the leave the employee has accrued, taken or cashed up before commencement. The intent is that any negative Type A annual leave balance (from subtracting leave taken in advance) will be offset, at least to some extent, by the converted Type B annual holidays. From the first pay period after commencement, newly accrued and newly taken leave will be added to or deducted from these balances.

Employers must also keep a record of the number of weeks or days converted for each leave type, and the total number of converted hours.

Converted entitlements will form part of the employee's leave balances from commencement and will be treated as leave accrued under the new Act. This means the new payment methodology will apply, as the minimum entitlement, to all leave taken from commencement, including converted leave. In other words, leave earned under the old rules will be paid under the new leave hourly rate once the new Act is in force.

Under the new Act, the amount of annual leave an employee can cash up or must be allowed to take in a 12 month period is anchored to their balance at their start date anniversary. At commencement, employees will not yet have had a start date anniversary under the new Act, and their previous anniversary balances will have been held in weeks. The Bill deals with this in two ways for the period between commencement and an employee's first start date anniversary under the new Act.

In that period, 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.

In that period, an employer must allow, and can require, an employee to take all of their converted Type A previous annual holidays. Following commencement, an employer must also not unreasonably withhold consent to an employee's request to take their converted Type A and Type B annual holidays. Under the new Act, both Type A and Type B previous annual holidays will be treated as leave accrued under the Act.