Holidays Act 2003 Reform: What NZ employers need to know

Published 29 Sep 2025 | 2 min read

The Holidays Act 2003 will be repealed and replaced by the Employment Leave Act. Employees will accrue annual and sick leave in hours from day one, with pro rata sick leave and a 12.5% compensation payment for casuals. Parents returning from parental leave will get full annual leave pay, employers must provide clear pay statements, and a 24-month transition will apply.

The challenge for Kiwi businesses

For years, New Zealand employers have struggled with the complexity of the Holidays Act 2003. Payroll errors, large remediation bills, and constant uncertainty have been common across small and large businesses alike.

Even government agencies have been caught out. Employers want clarity, and employees want confidence that their entitlements are right.

Why the old system failed

The Act’s rigid “weeks and days” framework often broke down when staff worked variable hours or patterns. Businesses faced costly compliance, employees found the rules confusing, and payroll providers had to build complex systems.

A key question many NZ employers now ask is: When will the Holidays Act be replaced?

Cabinet confirmed in September 2025 that the new Employment Leave Act will take its place, aiming to simplify leave calculations and reduce compliance costs.

The new approach to leave

The Employment Leave Act will base all leave on hours, creating one simple accrual system that works across different work patterns. Employees will be able to take leave in part days, not just whole days, making it easier to match real life.

Casual staff and extra hours worked will be compensated upfront at 12.5% instead of accruing leave.

Public holiday entitlements will be determined by a new clearer test, and alternative holidays will accrue on an hours basis.

Why employers must prepare

This reform is not just technical; it changes the way leave is earned, recorded, and paid. Payroll providers and employers will need to update payroll settings and systems, update employment agreements, and provide staff with transparent pay statements.

Parents returning from parental leave will now be paid annual leave at full rates, closing a long-criticised gap.

The Minister has stated that for many people leave entitlements will stay the same, what will change is how they are calculated.

Moving forward with confidence

The Employment Leave Act aims to bring clarity where the Holidays Act caused confusion. Entitlements will feel familiar, but calculations will finally be workable.

Employers now have a clear 24-month window to prepare payroll, update policies, and engage staff in the transition.

If businesses take early steps, this reform could drive greater certainty, reduce compliance risks, and prove to be a win for both workers and employers across New Zealand.

FAQs: Holidays Act 2003 Reform (NZ)

When will the Holidays Act 2003 be replaced?

The Holidays Act 2003 will be repealed and replaced by the Employment Leave Act. Cabinet confirmed this in September 2025. Once the Bill is passed, there will be a 24-month implementation period for employers and payroll providers.

How will sick leave change under the new law?

Sick leave will accrue from day one of employment and will be calculated on a pro rata basis, tied to an employee’s contracted hours. This ensures part-time and variable-hour staff receive fair entitlements.

What happens to casual employees under the new Act?

Casual employees and anyone working additional hours will receive a 12.5% Leave Compensation Payment instead of accruing leave. This replaces the patchwork “pay as you go” arrangements under the old Act.

Will annual leave entitlements stay the same?

For many people, entitlements will stay the same, but they will now accrue in hours instead of weeks. Parents returning from parental leave will also receive their full annual leave pay instead of reduced rates.

What new obligations will employers have?

Employers will be required to provide clear pay statements each pay period, itemising pay and leave. Payroll settings and employment agreements will need to be updated to reflect the new hours-based accrual system.

If you're an employer seeking advice, our friendly HR and employment experts are just an email or a phone call away. 

Email us at info@eqconsultants.co.nz, or call us on 03 366 4034 for professional, one-on-one guidance.

This article is not intended as legal advice but is intended to alert employers to relevant topics of interest and how to be prepared.

Note: This information is based on official details from Employment New Zealand and is subject to change. Always refer to the latest guidelines for the most accurate information. Visit Employment New Zealand here.