Annual Leave Law Changes Are On The Horizon

Annual Leave, Sick Leave Shake-up

At the centre of the current discussion is a proposed annual leave law change that would see annual leave and sick leave accrue based on hours worked, rather than relying on some of the more complex calculations currently used under the Holidays Act framework.

The Government says the reforms are intended to simplify compliance, reduce payroll errors, and create greater certainty for businesses and workers alike. However, submitters before the select committee have warned that some employees — particularly shift workers and part-time workers — could end up financially worse off under the new system.

What the Proposed Annual Leave Law Change Would Do

The proposed legislation would introduce a new accrual-based approach to leave calculations. According to Workplace Relations Minister Brooke van Velden, the goal is to reduce the widespread payroll and compliance problems that have affected both public and private sector employers for years.

Key proposed changes include:

• Annual leave and sick leave accruing from day one
• Leave entitlements calculated based on hours worked
• The ability to cash in up to 25% of annual leave
• Simplified payroll calculations intended to reduce compliance errors

The Government has acknowledged that the reforms may not benefit everyone equally and that there will be “edge cases” where some employees or employers are disadvantaged.

Concerns from Employees and Unions

A major criticism of the annual leave law change is that workers who rely on overtime, penal rates, or shift allowances may receive less when taking leave.

Submissions to the select committee highlighted concerns from healthcare workers and shift-based employees whose leave payments may no longer fully reflect the additional income they earn through unsocial hours or overtime.

There are also concerns that:

• Employees may feel less able to afford taking leave
• Public holiday incentives may weaken
• Workers in sectors with high burnout rates could be disproportionately affected

Unions argue the changes risk making some workers “materially worse” off financially.

Concerns and Opportunities for Employers

From an employer perspective, the proposed employment law reforms may provide greater certainty and simpler administration over time. Many businesses have struggled with Holidays Act compliance due to the complexity of current calculations. Payroll remediation exercises have already cost some organisations millions of dollars.

Potential benefits for employers include:

• Simpler payroll administration
• Reduced risk of inadvertent non-compliance
• Clearer accrual systems
• Greater certainty around leave liabilities

However, the transition itself may still be substantial. The Minister has indicated employers and payroll providers would likely have a two-year transition period once the legislation passes.

Employers should also be aware that changes to leave structures may create:

• Staff morale concerns
• Employment relations challenges
• Pressure to renegotiate collective agreements or workplace policies
• Increased scrutiny around rostering and public holiday practices

How Employers Can Prepare for Pending Employment Law Changes

Although the bill remains a proposal at this stage, businesses should begin monitoring developments closely.

Practical steps include:

Reviewing Payroll Systems

Ensure current payroll software and leave calculations can adapt to future changes.

Auditing Employment Agreements

Check whether agreements contain clauses that may need updating if the annual leave law change proceeds.

Monitoring Legislative Updates

Employment law changes often evolve during the select committee and drafting process. Staying informed early reduces disruption later.

Seeking Specialist Advice

Changes to leave entitlements can affect:

• Payroll compliance
• Employment agreements
• Collective arrangements
• Workforce planning
• Dispute risk

Obtaining guidance before implementation can help businesses prepare proactively rather than reactively.

The Role of Specialist Employment Law Advice

Employment law reforms often involve more than simply updating payroll systems. They can affect workplace culture, contractual obligations, and operational decision-making.

For employers, obtaining informed legal advice can assist with:

• Understanding how proposed reforms may affect the business
• Updating policies and agreements appropriately
• Managing employee communications
• Reducing compliance risk during transition

For employees, understanding how changes may affect leave entitlements and pay structures can also be important before agreeing to new arrangements.