Casual employees are about to get more expensive

The Employment Leave Act 2026 replaces the Holidays Act 2003 on 6 August 2028. Three things matter to a shearing business: the 8% you pay casuals becomes 12.5%, nobody's leave pay can be calculated without hours recorded against tallies, and most of the people you currently call casual will not meet the new definition.

The short version

• Nothing changes until 6 August 2028. Two more full seasons run under the current rules, and the new ones cannot be adopted early.
• Pay-as-you-go at 8% ends. A leave compensation payment of 12.5% replaces it on casual and additional hours, shown as its own line on every payslip.
• On casual hours paid purely by piece rate, that is 56% more. A shearer on NZ$2,500 of piecework costs NZ$200 today and NZ$312.50 from 2028. On standard hours no LCP is paid at all, so how you classify someone is also how you price them.
• Hours become as important as tallies. Leave pay for piece rate employees is an hourly average, and without hours there is no rate to pay.
• Keep shearers purely per head. On pure piece rates their leave pay does not change at all. Put an hourly rate in the same agreement and it stacks on top of the piece average, which can push the leave rate above anything they earn.
• Some costs fall. Sick leave becomes proportionate for part-timers, and alternative leave accrues by the hour rather than the whole day.
• Shed rates for the 2028/29 season need repricing, and that negotiation happens during 2027.

The Employment Leave Bill (the draft legislation) passed its third reading on 29 July 2026 and became the Employment Leave Act 2026 on Royal assent, 6 August 2026. Employment New Zealand is explicit that employers cannot start following the new Act early, even if they are ready.

What it costs

Today you can agree to pay holiday pay as you go at 8% of gross earnings where work is intermittent or irregular, or on a fixed term under 12 months. That ends on 6 August 2028, replaced by the leave compensation payment, or LCP: 12.5% of the employee's ordinary hourly rate, paid on every casual hour and on every additional hour worked by someone who has standard hours. It is paid in the pay period the hours are worked, in place of accruing annual and sick leave on them, and it is mandatory, with no eligibility test to apply.

Additional hours only exist for someone who has standard hours. They are hours beyond the contracted ones that the employer is not required to offer, that the employee may refuse, and that carry an additional payment. Hours worked for time off in lieu fail that last condition and attract no LCP. A casual with no specified hours has nothing additional to work, so every hour is a casual hour and the 12.5% applies to all of their pay.

For an employee paid by piece rates, the ordinary hourly rate is the lowest hourly wage rate in the agreement for that day plus an hourly average of piecework wages. Every example below assumes no base hourly rate, so the average is the whole of it. Where a shed agreement carries an hourly minimum the two stack, which is set out under recording below and matters more than it sounds. The LCP sits on top of any penal rate rather than inside it. That piecework average is itself a 93 day trailing figure, worked out the same way as the leave rate below rather than from the current week, so an LCP paid during main shear runs on an average that includes pre-lamb and crutching. The tables below use a steady week where the two coincide. MBIE's example is an employee on an ordinary rate of NZ$30 paid double time for an additional hour, who receives NZ$60 for the hour plus a separate NZ$3.75 of LCP, calculated on the NZ$30 and not the NZ$60. Where the ordinary hourly rate falls below the minimum wage, the LCP is calculated on no less than the minimum wage, NZ$23.95 an hour since 1 April 2026. The LCP itself does not count toward minimum wage compliance, so a per-head rate sitting near the floor on a slow day still has to be topped up separately.

Nobody pays the LCP on standard hours. Those accrue 0.0769 hours of annual leave and 0.0385 hours of sick leave per hour worked instead, which at a leave rate near the piecework average is 7.69% and 3.85% of the same earnings. Full accrual therefore comes to 11.54%, under the 12.5%, and well under it where sick leave goes untaken.

That is not an invitation to relabel casuals. Standard hours are hours the employee is required to work and that you are obliged to pay for, so the lower loading is bought with a commitment to provide and pay for those hours whether or not you have sheds booked. The 12.5% is what flexibility costs. For seasonal work that commitment is lighter than it sounds, because a part-year arrangement lets you set standard hours through the season alongside defined periods of no work and no pay outside it, written down in a notional roster.

Public holidays are the other cost. A day is an otherwise working day if the employee would have worked it under their agreement. Where the agreement does not specify days of work, or the employee works days on top of those it specifies, a new test applies: the day qualifies if the employee worked, or was on paid or unpaid leave, on 50% or more of the corresponding day of the week in the preceding 13 weeks. It applies to employees on casual hours too. For a gang working six days a week through main shear, Christmas Day, Boxing Day, New Year's Day and 2 January will usually qualify, which is a cost that has to sit inside the shed rate.

Two changes run the other way. Sick leave becomes proportionate to hours rather than a flat 10 days, and alternative leave accrues by the hour worked rather than as a whole day.

Sick leave accrues at 0.0385 hours per standard hour worked, so a 40 hour week produces 80 hours a year, the equivalent of the current 10 days. Separately, the balance is capped at 160 hours. Annual leave accrues at 0.0769 hours per standard hour, or four weeks a year on the same basis, and those hours are banked so balances no longer move when work patterns change.

Three pay runs, today and from 2028

The same shearer in all three: 1,000 sheep across five days, 40 hours, NZ$2.50 a head. That is NZ$2,500 of piecework and an ordinary hourly rate of NZ$62.50. Each table shows cash paid plus the leave provision behind it, because the LCP buys out annual and sick leave and a comparison that counts only annual leave on the other side is not like for like. PAYE, ACC and KiwiSaver are identical in every column and are left out. The figures are invented to keep the arithmetic clear.

Casual and fixed term both rise. Full-time barely moves, because annual leave shifts from a rough 8% proxy to an exact 7.69% while sick leave is unchanged at 80 hours a year for a 40 hour week, the same 10 days a full-timer gets now. Fixed term is the one to watch: it loses pay-as-you-go, and because a fixed-term shearer with defined hours has standard hours from 2028, it picks up sick leave accrual it never carried before.

The most useful number is not in any single column. Casual is currently about NZ$96 a week cheaper than full-time. From 2028 it is NZ$24 a week dearer. That NZ$120 swing is the real change, and it is why classification stops being paperwork and starts being pricing. The 2028 gap itself is only NZ$24, because the LCP at 12.5% sits just above full accrual at 11.54%.

The disruption in the fixed term column is also not in the total. The employee's weekly pay drops NZ$200, because the 8% stops being cash and becomes banked leave. The value to them is close to unchanged, but the number on the payslip is smaller every week, and that is a conversation with every person on a fixed term. Better had before the 2028/29 season than during it.

Two caveats on the Today column. Annual leave for a piece rate shearer currently runs on the greater of ordinary weekly pay and average weekly earnings, and average weekly earnings spreads annual gross across 52 weeks, well below what they earn through main shear. The NZ$200 provision is an estimate, and if your real figure is lower then full-time rises slightly rather than staying flat. From 2028 the rate is the 93 day average taken from the season itself, so leave taken in or near the season costs more per hour than it does now. The casual column also assumes no sick leave, which will not hold for every casual on your books under the current eligibility rules.

What you have to start recording

This is the change that needs action now rather than in 2028. The Act removes ordinary weekly pay, average weekly earnings, relevant daily pay and average daily pay, and replaces all four with a single hourly leave rate covering every leave type. For employees paid wholly or partly by piece rates, MBIE describes that rate as including "an hourly average of piecework wages".

The average runs over the pay periods starting in the 93 days before the pay period the leave falls in, which means whole pay periods only: 13 weekly, 6 fortnightly or 3 monthly. The divisor is the hours the employee worked in those periods, excluding paid leave. Take a shearer on standard hours, on the same piece rate, taking one eight hour day in October.

Where the calculated rate falls below the minimum wage the minimum applies instead, checked last after the two components are added. NZ$23.95 is the rate from 1 April 2026, not a forecast of what it will be in August 2028.

Piece, hourly, or a mix

How you pay someone changes what their leave costs, and the three structures do not behave the same way. Purely per head is the cheapest and the simplest: the leave rate is the piece average, and leave pay lands where it does today. Purely hourly is equally simple, at the hourly rate.

A mix is the expensive one, and it is the one that catches people. The piece average is divided by all hours worked, not just piece hours, so hourly work dilutes it. The hourly rate is then added on top rather than replacing it. The two stack.

That shearer earned NZ$260 less for the week and their leave rate went up 28%, to more than anything they are paid for any hour worked. It happens wherever an hourly rate creeps into a shearer's agreement: shed work, wet weather or standby, travel time, an hourly guarantee for a learner. Keep shearers purely per head, and top up to the minimum wage on a slow day rather than writing a standing hourly rate in.

Bonuses are the third option and worth modelling before you settle anything. A contractual incentive bonus is generally excluded from the leave hourly rate, where a piece rate is not, so for work that genuinely suits a threshold, team or quality bonus rather than a straight per-unit rate, it can be the cheaper structure. What decides it is substance, not what payroll calls the line. A per-head amount is piece work whatever label sits on top of it.

If your records hold the NZ$32,500 but not the 520 hours, there is no rate. The hours carry no rate of their own, since the pay still comes off the tally, but they are the denominator in five separate calculations: the minimum wage check, the ordinary hourly rate behind the LCP, this leave rate, the accrual multipliers for anyone on standard hours, and the balance conversion in 2028. A contractor recording counts in May 2028 with no hours against them cannot produce a compliant leave figure. That matters twice over, because the 93 days before commencement, roughly May to August 2028, is also the window used to convert everyone's existing balances into hours. Poor data in that window becomes wrong opening balances permanently.

What you have to fix on paper

Every hour now falls into one of three categories. Standard hours are hours the employee is required to work under their agreement. Additional hours are hours beyond those, which you are not required to offer and the employee may refuse. Casual hours are all hours worked by someone whose agreement requires neither party to offer or accept work. An employee cannot have standard hours and casual hours in the same role.

That definition of casual is narrower than industry usage. A shearer who has been on your books four seasons, who you contact every August, and who attends because both parties expect it, is not casual merely because the agreement says so. MBIE has warned about this specifically, and its guidance is to keep agreements an accurate reflection of how the work is actually carried out. Getting it wrong is recoverable: where the LCP was paid but leave should have accrued, the employee keeps the payment and there is no liability for the accrual, provided the arrangement is corrected within eight weeks of being notified.

Seasonal work is catered for directly. A part-year employee has standard hours plus one or more periods of seven or more consecutive days with no standard hours and no pay, and can take annual leave during those periods. Where an agreement does not specify hours or days, a notional roster must be agreed in writing, and different rosters can be set upfront for different times of year, so main shear, pre-lamb and crutching can each have their own. If the parties cannot agree, a Labour Inspector can determine it.

From commencement a pay statement is required for every pay period, which is a new obligation, and the LCP must appear on it as a distinct component. That ends the undocumented all-up rate: a single figure per head bundling a gear allowance, holiday pay, public holidays and KiwiSaver has to be separated into named components every pay period. All-up loadings on top of a base rate are still openly advertised in this industry, and each will need restructuring. MBIE has noted that a set-and-forget approach to payroll "will continue to carry a high risk of non-compliance". Penalty levels are unchanged at up to NZ$10,000 for an individual and NZ$20,000 for a company, but the list of provisions carrying one is expanded to match the new Act, and the pay statement obligation is itself new.

Reclassifying shearers as self-employed does not avoid any of this. The Employment Relations Amendment Act 2026, in force since 21 February 2026, introduces a gateway test requiring a written contractor agreement, freedom to work for others, no requirement to be available at set times or an ability to subcontract, no termination solely for declining work, and a reasonable opportunity to take independent advice. All five must be met. Gang work with set start times, employer-supplied transport and gear, and no right to send a substitute will usually fail at least one. The test also applies only to a natural person, so a shearer invoicing through a company cannot pass it at all and the common law test decides the relationship regardless.

What does not go away

Historical Holidays Act underpayments remain your liability. The Act adds a statutory remediation process covering underpayments in the six years before commencement. The estimation methodology comes in regulations, but the deadlines are already set. For current employees you have two years and two months from commencement. For former employees you must make all reasonable efforts to notify them within two years, then have two years and two months from that notice to calculate, notify and pay. Electing into the process suspends your Holidays Act obligations and liabilities and blocks new claims. Given the turnover in this industry the former employee population is the larger exposure. Employment New Zealand's position is that errors should be corrected now, because they carry over into the converted balances.

There is precedent here. In August 2016, MBIE labour inspectors visited seven central North Island shearing contractors after a complaint about public holiday pay. The then NZSCA president Jamie McConachie said afterwards that "in fact we're the same as other employers, the rules apply to us too".

What we would do first

Ordered by what it costs you to act, cheapest first. The first two are free.

1. Keep shearers purely per head. No standing hourly rate in a shearer's agreement and no hourly-paid shed work under it. Top up to the minimum wage on a slow day instead. This costs nothing and it keeps leave pay where it sits today.
2. Record hours against every tally, starting with this season. Every calculation in the new Act runs on hours, and the 93 days before commencement also set every opening balance. There is no version of 2028 that works without this.
3. Settle casual against standard hours, per person, in writing. This is the biggest number on the list. Casual is currently about NZ$96 a week cheaper than standard hours and becomes NZ$24 dearer, a NZ$120 swing per shearer per week, and a returning seasonal shearer probably is not casual under the new definition anyway.
4. Reprice shed rates for 2028/29 during 2027. Take the numbers above, work out what they are as a percentage of your shed rate, and have that conversation before the season rather than during it.
5. Correct existing Holidays Act balances before they are converted. Errors carry into the opening balances in hours and get harder to unwind afterwards.

On bonuses, model it before you commit. The saving is real, but the test is substance rather than description and the failure mode is arrears on every leave day already paid, which is the same shape as the Holidays Act remediation the industry is cleaning up now.

We build shearing software. None of those five steps need it.

The timeline

The one thing to do this year

Record hours alongside tallies, for every person, every day. It costs nothing in legal fees, it is the input every 2028 calculation depends on, and the window that sets your opening balances is already inside the planning horizon for two seasons' time. Everything else on the list gets easier once that data exists.

This article is general information about the legislation, not legal advice. Individual arrangements are a matter for an employment adviser or the NZSCA.

Reviewed August 2026. The Employment Leave Act 2026 commences 6 August 2028. Check Employment New Zealand for the latest guidance. Figures in the examples are invented to make the arithmetic clear and are not a guide to rates.