New Zealand’s new Employment Leave Act could leave some workers with significantly less pay while taking annual leave, raising concerns that people may delay or avoid taking time off, RNZ reported.
The law will replace the Holidays Act in 2028 and aims to make leave entitlements simpler and more predictable. However, employment experts and unions warn that changes to how annual leave is calculated could hit workers who rely on overtime, commissions and other variable pay.
Annual leave payments could fall
Under the current system, annual leave is generally paid at the higher of an employee’s ordinary weekly pay or average weekly earnings.
Average weekly earnings include eligible overtime, commissions and some bonuses earned over the previous 12 months.
Alison Maelzer, an employment law expert at Hesketh Henry, said the new system could result in lower leave payments for some workers.
"Payments for annual leave will - unless parties agree otherwise - be at what amounts to the employee's lowest rate of pay,” she quoted.
"So at present, when you take annual leave, you are paid at the higher of your 'ordinary weekly pay' or your 'average weekly earnings'. Average weekly earnings is made up by calculating your gross earnings in the last 12 months, divided by 52. Your gross earnings will include any overtime you have been paid for, commission you've earned, and some bonus or incentive payments. These additional payments could amount to a significant portion of some employees' earnings in a year,” Maelzer explained.
She added, "Under the new system, the leave payment will be based on, for waged workers, the lowest hourly rate payable for the shift you're taking leave from, or for salaried workers, the salary that is attributable to one hour of work."
Maelzer said overtime, bonuses and incentives would not usually be included under the new calculation.
"For workers who work a lot of overtime, those who receive significant incentive payments, and/or those who receive a significant part of their pay through commissions, this will make a noticeable difference to the pay that they receive during annual leave. This may potentially discourage people from taking leave, which in turn can have flow-on effects for health, safety, and wellbeing, as well as productivity. It could also mean leave liability for employers increases. The same payment rates would apply when unused leave is paid out at the end of employment."
Commission workers face particular risk
Workers who earn commission will have the option of negotiating a leave payment rate with their employer. If no agreement is reached, they could receive leave payments at the minimum wage.
Workers First Union national organiser Callum Francis said this could make taking leave financially difficult for some employees.
"Those that earn commission are going to find out quite shortly, if they haven't clicked, that they're going to be having less pay when they're on leave. It's potentially going to make it harder for them to take leave or want to take leave. This seems, at least from our point of view, like it isn't going to make life easier."
Francis said some workers already depend on overtime to cover household expenses.
"People are going to take annual leave and suddenly realise that they're losing potentially hundreds of dollars in a week. They will suddenly find that taking annual leave is more difficult… our colleagues and the people we deal with in supermarket retail stores are regularly put on their minimum hour contracts and regularly work at least, if not another day, then a number of hours extra in a week to try to help ends meet…we are genuinely worried that people aren't going to be able to take leave, or they're going to cash it up because they're low on money, and they're not going to get that time out from work."
Employers face new responsibilities
University of Otago associate professor Paula O'Kane said employers would need to pay closer attention to employment contracts and working hours.
"What I think needs to be considered from an employer's point of view is really what contracts and what hours they're putting their people on as their base rate.
"So they might need to think more carefully about having more accurate contracts and more consistent contracts so that gets paid properly."
O'Kane said the effectiveness of the new system would depend partly on how employers interpreted and applied the rules.
"I'm not sure there was ever any easy solution to getting this right, at the moment it's quite complex [but] there's worrying things in [the bill] and I think a lot of it will come down to how an employer interprets and works with it."
Casual workers face separate sick leave concerns
The new framework also raises questions around sick leave for casual workers.
O'Kane said sick pay not accruing for casual employees could leave some workers vulnerable when they become unwell.
"Sick pay not accruing for casual employees is a little bit problematic too because we could all say save that 4 percent you get extra into your pay packet for when you're sick [as a casual worker] but few people will be disciplined enough."
She said employers would also need to assess whether workers classified as casual were genuinely casual or effectively working permanent part-time hours.
O'Kane suggested a centralised sick leave system could have provided greater flexibility for workers moving between jobs.
"For casual employees you'll get your sick leave for every hour you work but if we had done that for all employees and put it into a centralized pot like a bit like ACC then you could let that accrue to infinity, because it's sitting in a government pot that you could pull it down under any employment, so instead of your employer paying you sick leave, that 4 percent would go into a pot every week or month when you get paid and then the employer pulls it down to pay you your sick leave… that would have been wonderful that would have solved a whole lot of problems. But it probably was too complex."
The reforms are intended to simplify New Zealand’s leave system, but the concerns highlight a potential gap between clearer rules and their financial impact on workers.