Understanding the Employment Leave Bill

Published 06 August 2026 | 4 min read

The biggest reform to New Zealand’s leave laws in more than 20 years is on its way.

The Employment Leave Bill has now passed its third and final reading in Parliament and, once enacted, it will replace the Holidays Act 2003.

For many employers, this will be welcome news. The current Holidays Act has long been recognised as one of New Zealand’s most complex pieces of employment legislation, creating confusion around leave calculations, payroll systems and compliance obligations.

While there is a 24-month implementation period before most of the new legislation takes effect, this is not a change businesses should leave until the last minute.

The organisations that prepare early will have a much smoother transition.

Why is the law changing?

The Holidays Act has been a source of frustration for employers, payroll providers and employees for years.

Complex calculations, inconsistent interpretations and ongoing payroll issues have resulted in significant compliance challenges across many organisations.

The new legislation aims to:

• simplify how leave is calculated
• provide greater certainty for employers and employees
• better reflect modern working arrangements
• reduce payroll complexity over time
• improve overall compliance.

While the new framework is designed to be simpler in the long term, there will be a significant adjustment period as businesses review employment agreements, payroll systems and internal processes.

What are the biggest changes?

1. Leave will be measured in hours, not days or weeks

One of the most significant changes is that annual leave and sick leave will no longer be expressed in weeks or days.

Instead, leave will accrue and be taken in hours.

This means:

• annual leave accrues based on an employee’s standard working hours
• sick leave also accrues in hours
• employees use one hour of leave for every hour they take off work.

For many businesses, this should provide greater consistency, particularly where employees work varying hours or flexible schedules.

2. Annual and sick leave begin accruing from day one

Currently, employees become entitled to annual leave after completing 12 months of continuous employment.

Under the new legislation:

• annual leave starts accruing from an employee’s first day of employment
• sick leave also begins accruing from day one
• bereavement leave and family violence leave will also be available immediately, including for casual employees.

This means employers will need systems capable of accurately tracking leave from the commencement of employment.

3. Working hours are being redefined

The Bill introduces three new categories of working hours that will determine how leave is accrued and paid.

Standard hours

These are the hours an employee is required to work under their employment agreement.

Leave will accrue on these hours.

Additional hours

These are hours worked above an employee’s standard hours (including some availability arrangements).

Rather than accruing leave on these hours, employees will receive a 12.5% leave compensation payment.

Casual hours

These apply where there is no obligation for the employer to offer work or the employee to accept it.

Like additional hours, these hours receive a leave compensation payment instead of accruing leave.

This distinction will be particularly important for businesses employing:

• casual staff
• employees working overtime
• employees with fluctuating hours
• employees on availability arrangements.

4. A simpler approach to leave payments

The Bill introduces a single hourly leave pay rate across all leave types.

This is intended to remove many of the complicated calculations employers currently face under the Holidays Act.

Importantly, annual leave taken after parental leave will also be paid using the same approach, helping address one of the more problematic areas of the current legislation.

5. Annual leave can be cashed up differently

Employees will be able to request payment for up to 25% of their accrued annual leave balance.

Under the current Holidays Act, employees are limited to cashing up one week of annual leave each year.

6. New payroll and record-keeping obligations

The new legislation places greater emphasis on accurate payroll records and transparency.

Employers will be required to provide itemised pay statements showing information such as:

• ordinary earnings
• leave compensation payments
• overtime payments
• deductions
• employer contributions
• relevant leave information.

This means businesses should expect additional payroll reporting requirements and ensure their systems are capable of meeting them.

7. Public holiday rules are changing

The Bill introduces a new test for determining whether a public holiday is an “otherwise working day” for employees with variable or irregular working patterns.

For employees without a regular work pattern, employers will need to consider whether the employee worked (or was on leave) on at least half of the corresponding weekdays over the previous 13 weeks.

Alternative holidays will also accrue in hours rather than days.

What should employers be doing now?

Although the legislation is not expected to take full effect for around two years, preparing early will reduce pressure later.

We recommend employers begin by reviewing:

✔ Employment agreements

✔ Leave policies

✔ Payroll systems

✔ Time and attendance processes

✔ Record-keeping practices

✔ Employment classifications (particularly casual and variable-hour employees)

Many businesses will also want to start discussing implementation plans with their payroll providers well before the legislation comes into force.

Timeline

Now

• Continue complying with the Holidays Act 2003.
• Begin reviewing your current employment documentation and payroll processes.

Expected shortly

• Royal Assent is anticipated.

Approximately 24 months later

• Most provisions of the new Employment Leave Act become operative.

Following implementation

• Employers will have an additional year to update leave provisions in employment agreements.

How EQ Consultants can help

Preparing for legislative change is much easier when it’s planned rather than rushed.

Our Employment Relations team can support your organisation by:

• reviewing employment agreements
• updating leave policies
• assessing payroll and record-keeping processes
• identifying areas of compliance risk
• helping you prepare an implementation plan before the legislation takes effect.

If you would like to discuss what these changes mean for your business, we’d be happy to help.