Proposed Holidays Act Changes

Annual leave has always carried two fundamental values for employees:

• Time off work for rest, recovery, and wellbeing
• Financial compensation while that leave is taken

While both are critical, they are often conflated. This article deliberately separates the two and focuses on the time off side of the equation — how much rest employees can actually take away from work under the proposed Holidays Act reform.

Future articles will explore the pay and financial impacts, other leave types, and broader system implications.

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What Is Changing Under the Proposed Holidays Act?

Current Rules (At a High Level)

Under the current Holidays Act, employees are entitled to four weeks of annual leave per year, paid at the greater of:

• Ordinary Weekly Pay (OWP), or
• Average Weekly Earnings (AWE) over the last 52 weeks

Leave is accrued over time but taken in weeks, even though payroll systems often manage it in days or hours.

The key constraint:
An employee cannot be paid for more than one week of leave in a calendar week. This has created ongoing complexity, particularly for:

• Employees with variable hours
• Non-standard rosters
• Payroll systems that require fixed weekly hours

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What Is Proposed Instead?

The proposed reform attempts to preserve the value of four weeks’ leave — but changes how it is earned and used.

Key Proposed Changes

• Leave accrues in hours, not weeks
• Accrual rate: 0.0769 hours of leave per hour worked, based on contracted hours only
• ‍Hours worked beyond the contract do not accrue leave
• ‍Instead, excess hours are paid with a 12.5% loading, covering annual and sick leave
  • Only two-thirds of this (8.33%) relates to annual leave
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• Leave becomes available as soon as it is accrued
• ‍Unpaid leave (with limited exceptions) does not accrue leave
• ‍Leave must generally be taken based on contracted hours
• ‍A “notional roster” option is mentioned but remains unclear

What Does This Mean in Practice?

Full-Time Employees With Stable Hours

For employees on a standard 40-hour week, little changes in outcome:

• They will still accrue around 160 hours of leave per year
• Leave accrues progressively rather than vesting after 12 months
• Most employers already allow advance leave, so the operational impact is minimal

Employees With Variable or Non-Standard Hours

This is where the reform becomes materially different. Employees affected include:

• Irregular or variable-hour workers
• Overtime-heavy roles
• Rotating or non-weekly rosters (e.g. 4-on, 4-off)
• Employees taking unpaid leave

For these groups, contracted hours become the single most important factor in determining how much leave they can actually take.

Key Implications for Time Off

1. Working Less Than Contracted = Less Leave

If an employee works fewer hours than their contract:

• They lose both pay and leave accrual
• Unpaid leave further reduces accrual
• Employees may no longer reach the equivalent of four weeks’ leave per year

This fundamentally changes annual leave from a guaranteed entitlement to a best-case outcome.

2. Working More Than Contracted = Cash, Not Rest

When employees work beyond their contracted hours:

• They receive a 12.5% loading
• They receive no additional time off

In effect, excess hours are treated similarly to PAYG casual work — compensated financially, but without recovery time.

3. Contract Accuracy Becomes Critical

Under the new model:

• Contracted hours must closely reflect actual working patterns
• Any sustained variance risks reducing time off
• Employees may need to renegotiate contracts frequently to avoid losing leave

This shifts complexity away from payroll systems and into employment relations.

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Complex Scenarios the Proposal Struggles With

Over-Contracted Employees

Employees contracted for more hours than they regularly work will:

• Accrue less than four weeks of paid leave
• Lose entitlement permanently for underworked periods
• Be unable to “catch up” later, as accrual is not averaged annually

Even occasional underwork has lasting consequences.

Under-Contracted Employees

Employees who regularly work more than contracted:

• Receive cash loading instead of time off
• May struggle to take meaningful rest
• Face pay fluctuations when leave is taken
• May have limited clarity around refusing overtime during leave periods

Variable Roster Workers (Example)

A 4-on, 4-off, 12-hour shift worker rotates between 36- and 48-hour weeks. Depending on contract design:

• 48-hour contract: ~3.5 weeks off per year
• 42-hour contract: ~3.7 weeks off plus partial financial compensation
• 36-hour contract: ~4 weeks off plus additional cash loading

Financial outcomes may be similar — but time off varies significantly.

There is currently no clear guidance on how leave should be taken when actual rosters exceed contracted hours during leave periods.

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Could This Be Simpler?

Yes — and without sacrificing fairness. If the stated goal is to preserve the equivalent of four weeks’ leave, a more logical model would be to:

• Allow leave to accrue on all hours worked, including overtime
• Apply a consistent accrual rate (0.0769 hours per hour worked)
• Remove the distinction between contracted and non-contracted hours for leave accrual

This would:

• Preserve both rest and financial value
• Avoid hybrid permanent/casual treatment
• Reduce pressure on contract design
• Support genuinely flexible work patterns

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Final Thoughts

The proposed Holidays Act reform significantly reshapes annual leave - particularly for variable and vulnerable workers. What was once a guaranteed employment right risks becoming conditional on contract precision and ongoing renegotiation. While simplification is necessary, it should not come at the expense of universality or employee wellbeing. Flexibility in modern work patterns should be supported - not penalised. As the legislation evolves, employers should expect:

• Increased contract complexity
• Heightened employee concern
• Greater scrutiny once implications become widely understood

Whether the final Act achieves balance will depend on how these unresolved issues are addressed.

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