The Employment Leave Bill has passed its final reading and will shortly become the Employment Leave Act 2026.
The new Act brings in significant changes which are intended to simplify employee leave entitlements and remove current payroll challenges. Some important changes are discussed below.
Accruing Leave
A major change is that full and part-time employees will accrue annual and sick leave from their first day of employment (rather than after 12 months and 6 months respectively).
Annual leave will accrue at a rate of 0.0769 hours for each standard hour worked. A full-time employee who does not take leave within the first 12 months of their work will therefore accrue the equivalent of 4 weeks of annual leave.
Sick leave will accrue at a rate of 0.0385 hours for each standard hour worked, up to a cap of 160 hours (roughly the equivalent of 20 working days). A full-time employee who takes no sick leave within the first 12 months will still accrue the equivalent of the 10 days sick leave we are currently used to.
Employees can take leave in hours, rather than days. They can cash also up to 25% of their annual leave balance once in each 12-month period. These are points for payroll providers to note.
The 12.5% Leave Compensation Payment
The new Leave Compensation Payment (LCP) applies to: casual employees and those employees who work additional hours above their standard contracted hours.
The LCP is a payment of 12.5% of the ordinary hourly rate for those hours worked. It is to be paid at the time that the hours are worked, rather than accrued. It must be shown as a distinct, itemised component on pay slips. It replaces the current 8% “pay-as-you-go” holiday pay for casual employees.
For businesses that engage casual staff or regularly pay additional hours, this could mean considerable additional cost as overall the cost to the employer will be higher now.
Bereavement and Family Violence Leave
Employees will be entitled to bereavement leave and family violence leave from their first day (rather than after 6 months). These entitlements remain day-based, but can be taken on a part-day basis.
Public Holidays and the new “Otherwise Working Day” Test
The Act introduces a new Otherwise Working Day (OWD) Test for public holiday payments. It simply asks whether the employee worked (or was on paid or unpaid leave) on that same day of the week for at least 50% of the preceding 13 weeks. The test applies where an employment agreement does not specify set days of work; where set days are specified, those days govern.
Employers must notify employees whether a public holiday is an OWD. If an employee works a public holiday that is an OWD, they accrue one hour of alternative leave for every hour worked, in addition to time-and-a-half. Alternative holidays now accrue in hours and can be cashed up at any time.
Leave Payment
Current leave calculations can be confusing, particularly where overtime, commission or allowances are involved. The new Act simplifies this. There is to be a single hourly leave payment rate:
• Salaried employees — the rate for one standard hour of work.
• Waged employees — the lowest hourly rate payable on the day leave is taken.
• Commission or piece-rate employees — the greater of the standard rate or the applicable minimum hourly rate.
When do the changes take effect?
The new Act does not take effect immediately. In most sectors, most provisions will apply in two years time giving employers and payroll providers time to update their systems, processes and employment agreements. However, parental leave provisions are anticipated to come into effect as early as 1 July 2027.
What’s next?
Although the Act is now law, the substantive changes will not take effect until the commencement dates above. In the meantime, employers should continue to comply with the Holidays Act 2003 and will need to ensure any employment agreements that do not meet the new statutory minimums are updated within one year of commencement.
Over the course of the next 2 years, employers will need to ready their payroll systems and employment agreements. Corcoran French can advise on these should the need arise.