Workers who top up their income with overtime, commission or extra shifts will take home noticeably less in the weeks they go on holiday once New Zealand’s new leave law takes effect, and employment lawyers and unions warned this week that some people will simply stop taking leave rather than wear the drop.
The Employment Leave Act received Royal assent on 6 August and replaces the Holidays Act 2003 from 6 August 2028. It rebuilds leave from the ground up. Annual and sick leave will accrue in hours rather than weeks, from an employee’s first day, and every hour of leave taken will be paid at a single hourly rate.
That single rate is where the money moves. Under the Holidays Act, a week of annual leave is paid at the higher of ordinary weekly pay and average weekly earnings, and average weekly earnings sweep in a full year of overtime, commission and incentive payments. Under the new Act, a waged employee’s leave is paid at the lowest hourly rate payable under their employment agreement on the day the leave is taken. The Act’s own definitions expressly exclude allowances and productivity or incentive payments, including commission, from that rate.
Alison Maelzer, an employment law specialist at Hesketh Henry, told RNZ that annual leave payments would in effect be made at an employee’s lowest rate of pay. “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,” she said. “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.”
Parliament did not simply delete that money. In its place the Act creates a leave compensation payment, paid on every additional and casual hour worked at 12.5 percent of the employee’s ordinary hourly rate, and paid in the same pay packet as the hours themselves. The select committee report on the bill sets out exactly how that 12.5 percent is built, with 7.69 percent standing in for annual leave, 3.89 percent for sick leave and the remaining 0.92 percent covering everything else. Extra hours no longer earn leave, so they are cashed out instead.
Workers First Union national organiser Callum Francis said the practical effect would land hardest on people whose contracted hours are well below the hours they actually work. “People are going to take annual leave and suddenly realise that they’re losing potentially hundreds of dollars in a week,” he told RNZ. He said supermarket retail workers were regularly kept on minimum hour contracts while picking up an extra day or more each week to make ends meet, and that they were likely to cash leave up rather than take it.
The arithmetic is worth working through, because the annual picture and the weekly picture point in different directions. The Public Service Association, which campaigned against the bill and estimates more than 200,000 workers will be affected, published a worked example built around an airport firefighter working 50 hours a week, including 10 hours of overtime paid at time and a half. Their pay for a week of annual leave falls from $2,145 now to $1,560 under the new rules, a gap of $585. The union puts the annual loss at $1,267.50.
Newswire ran the same example out over a full year. The firefighter’s ordinary rate works out at $39 an hour, so the new 12.5 percent loading adds $48.75 to every week they actually work. A worker taking four weeks of annual leave and ten sick days works 46 weeks, which is worth $2,242.50 in loading over the year. Set against that, four weeks of annual leave paid at the lower rate costs them $2,340. The loading covers all but $97.50 of it.
Almost the entire remaining loss sits somewhere else. Ten days of sick leave paid at the lower rate costs another $1,170, and that is what takes the total to the union’s $1,267.50 figure. Put plainly, in the union’s own headline example, roughly 92 percent of the yearly loss comes from sick days rather than from holidays, and a worker who takes their four weeks but no sick leave ends the year within about $100 of where they started.
What does not change is the hole in the leave week itself. That firefighter is still $585 lighter in the week they go away, and the loading that makes up for it has already been spent across the year in small weekly instalments. This is a cash flow problem before it is a total pay problem, which is precisely the point the unions are making about whether people will feel able to book time off.
The loading also only ever pays 12.5 percent of the ordinary rate, not of the penal rate, so the more generous a worker’s overtime premium is, the less of the gap it closes. Workers paid partly or wholly by commission are in a different position again. They can negotiate a leave payment rate with their employer, and if no agreement is reached, the Act sets their leave at the applicable minimum wage.
University of Otago associate professor Paula O’Kane said the outcome would now depend heavily on how employers write contracts. Employers might need “more accurate contracts and more consistent contracts so that gets paid properly”, she told RNZ, and would have to think harder about which staff were genuinely casual and which were really permanent part-time.
Workplace Relations and Safety Minister Brooke van Velden has defended the overhaul as long overdue, telling Parliament at the bill’s third reading in July that it delivered “a simpler, fairer, and more workable system” and removed the need for “confusing conversions” between hours, days and weeks. Payroll remediation under the old Act has cost hundreds of millions of dollars, and employers now have two years to rebuild their systems, with a further year after that to bring employment agreements into line.
Nothing changes in anyone’s pay packet before August 2028. The practical question between now and then is how many employers set contracted hours that match the hours people actually work, because that single number will decide how much leave most workers earn and what each hour of it is worth.
Do you work regular overtime or earn commission, and have you worked out what the new rules will mean for your next holiday? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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