What employment law reforms are in store for 2021?

Related expertise

With the Government’s announcement to extend paid sick leave, what other employment reforms are in the pipeline, and what should you be doing now to prepare?

Between 2017 and 2020, the Government made a series of changes to workplace-related legislation. In the 2020 election campaign, Labour signalled a number of further reforms if re-elected. With the 2020 election result enabling Labour to govern alone, we can expect to see those reforms take shape. To date, the Government has already delivered on its promise to introduce legislation to increase sick leave entitlements, and other reforms are likely to be rolled out within the coming year. We’ve provided some practical tips to deal with these changes.

Increasing the minimum wage and extending Living Wage guarantees

Minimum wage

In its first term, the Government increased the minimum wage progressively, most recently increasing it to $18.90 in April 2020.

The Government has pledged to increase the minimum wage to $20 per hour from 2021. At the time of writing, the timeframe for this change has not yet been announced, but based on past minimum wage increases we expect this is likely to take effect from 1 April 2021.

Living Wage

In addition to the minimum wage increase, Living Wage guarantees will be extended to contracted public service workers. Calculated annually by the New Zealand Family Centre Social Policy Unit to reflect the hourly wage needed for a worker to cover expenses such as food, transportation, housing and childcare, it is currently set at $22.10 per hour.

As contracts end in the public service, agencies will be required to include payment of the Living Wage in new contracts when these are renegotiated and renewed. Labour has also signalled an intention to expand this into the wider state service, including DHBs.

We recommended the following practical steps to prepare for the changes:

  • Review whether any employees in your organisation are being paid the current minimum wage, or are being paid more than current minimum wage but below the new level of $20 per hour.
  • Employers should ensure they are aware of any extra hours salaried employees are working, as extra hours worked by salaried employees may result in breaches of minimum wage legislation. An employee on a salary of $42,000 for a 40-hour per week job receives an hourly rate just above the new minimum wage. If they work early or stay late and end up working 45 hours per week, their resulting hourly rate of $17.95 falls well below the minimum wage.
  • Organisations that are contracted to public sector agencies should factor in the Living Wage when calculating staffing costs as contracts come up for renewal.

Changes to leave entitlements

Increased sick leave entitlement

The minimum sick leave entitlement is currently 5 days per year after an employee’s first six months’ employment. Many employees have more generous sick leave provisions in their employment agreement.

The government introduced the Holidays (Increasing Sick Leave) Amendment Bill on 1 December 2020, and at the time of writing, the Bill has passed its first reading and been referred to select committee. The Bill will increase the minimum sick leave entitlement to 10 days per year, but keeps the current maximum entitlement allowing any unused sick leave to be carried over up to 20 days annually.

Following public consultation, the Bill is expected to pass in mid-2021 and come into force a couple of months later, although employee’s increased entitlements will not happen all at once – existing employees will have to wait until their next entitlement date before they will receive the increased sick leave entitlement.

Ability to take leave as accrued

As noted above, employees only become entitled to sick leave after six months’ employment; entitlement to annual holidays occurs after 12 months. In practice, many employers already permit employees to take annual leave in advance of entitlement on an accrual basis, and some employers also allow employees to take sick leave in advance of entitlement.

New legislation could allow employees to take sick and annual leave when needed on an accrual basis instead of waiting for an employment anniversary to become entitled to the leave.

Bereavement and family violence leave

Currently, employees are entitled to 10 days’ domestic violence leave and up to three days’ bereavement leave after six months’ employment. The government has indicated it intends to allow employees to take bereavement and family violence leave “as needed”.

We recommended the following practical steps to prepare for the changes:

  • Employers should review internal policies and employment agreements to see if any variations will be needed to comply with the new requirements.
  • Payroll systems may need to be updated to allow sick leave to accrue.

Extending protections to dependent contractors

“Dependent contractors” are workers who are classed as self-employed contractors but are effectively under the control of an employer. For example, a courier driver who is contracted exclusively to one courier company may be a dependent contractor.

These contractors do not receive the legal protections provided to employees or any minimum leave entitlements. Currently the question of whether a contractor is a dependent contractor is decided by the courts on a case-by-case basis.

The government has promised to introduce legislation to extend statutory minimum entitlements for leave and ensure dependent contractors have the right to collectively bargain. A new statutory test will be created to determine who is a dependent contractor.

To limit liability and ensure contracted workers are not dependent contractors, we recommend businesses take the following steps:

  • Ensure (to the extent possible) the contractor is not required to work exclusively for your organisation;
  • As far as possible, try to ensure they have the ability to freely accept or decline work;  
  • Have clear, concise written agreements;
  • If the contractor is hired for a fixed term, the contract should clearly state the start and end dates and notice period if the relationship is terminated before the end date; and
  • If the contractor is hired for an indefinite period, ensure the termination clause sets out clearly the notice period to be given.

Pay equity

In its previous term, the government amended the Equal Pay Act 1972 to:

  • Create a process for pay equity claims;
  • Allow employees to raise pay equity disputes directly with their employers instead of through the courts;
  • Prohibit disparity based on gender in the pay offered to employees for work that is predominately performed by women;
  • Establish a bargaining process for using such comparisons to determine fair pay; and
  • Permit the courts or the Employment Relations Authority to award back pay in a pay equity determination.

The Government intends to increase transparency by requiring detailed records of pay equity across New Zealand, which would include ethnicity and age as well as gender. Improved transparency is intended to allow people to more easily see where problems may lie and help to streamline the process to negotiate pay settlements.

We recommended the following practical steps to prepare for the changes:

  • Conducting a pay and employment equity audit to assess where any risk might lie. The Human Rights Commission has created a Pay Equity Tool for organisations to self-assess their current performance and monitor progress towards gender equity within the organisation.

Fair Pay Agreements

A Fair Pay Agreement sets out minimum terms and conditions for workers across an industry or occupation. These set out the minimum accepted terms and conditions across an entire industry or occupation, rather than setting them for each individual business.

Fair Pay Agreements have been implemented in overseas jurisdictions – for example, Australia brought in Fair Pay Agreements and regulations over a decade ago.

In its previous term, the Government consulted with the public on how to design Fair Pay agreements. The Fair Pay Working Group, which was made up of business sectors and workers, recommended the government legislates to set the minimum content that must be included in each Fair Pay Agreement. Key provisions that are expected to feature in Fair Pay Agreements include:

  • Agreements would cover both employees and dependent contractors;
  • Unions would represent workers during bargaining;
  • Concluding an agreement would require majority support from both workers and employers; and
  • Regional variations and exemptions may be negotiated for employers facing severe financial hardship.

Other expected changes to employment law

Labour made several other pre-election pledges which we expect will be implemented during its second term in Government. These include:

  • Simplifying leave entitlement calculations to provide greater clarity on leave calculations for employees who work variable hours.
  • Raising the age for workers to be allowed to perform hazardous work from 15 to 16.
  • Allowing workers in small businesses to elect health and safety representatives.  
  • Raising benefit abatement thresholds to increase the amount people can earn, so that entering the workforce part-time becomes financially viable for a larger number of people currently receiving a benefit.

For more information on how to prepare for these likely changes, or for specialist advice on any employment issues, please contact a member of our employment team.


Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

Related insights

Find an expert