After more than two decades of complexity and confusion, the Holidays Act 2003 is being replaced. The Employment Leave Act 2026 received Royal Assent on 6 August 2026 and will come into force on 6 August 2028, giving employers, employees, and payroll providers a two-year runway to prepare for what is the most significant overhaul of New Zealand's leave framework since 2003.
Why Reform Was Needed
The Holidays Act has long been criticised as difficult to interpret and apply consistently, leading to widespread payroll errors and costly remediation across both public and private sector employers. Workplace Relations and Safety Minister Brooke van Velden described the reform as delivering a leave system that is "simple and straightforward," giving employers confidence in their calculations and employees confidence they are being paid correctly.
Moving to Hours-Based Accrual
The most fundamental shift is a move away from calculating leave in weeks and days, to counting leave in hours. The new Act introduces three categories of hours — standard, additional, and casual — which will determine how leave is earned and paid for each employee, depending on how regularly and consistently they work.
Leave will accrue from day one of employment, rather than requiring employees to reach service milestones before certain entitlements apply. This includes annual leave, sick leave, alternative holiday leave, bereavement leave, and family violence leave, each of which gains updated rules under the new framework.
Public Holidays and the "Otherwise Working Day" Test
A new "otherwise working day" (OWD) test will determine entitlements around public holidays. Where an employee works a public holiday that would otherwise have been a working day for them, their alternative leave entitlement will now accrue hour-for-hour, replacing the more subjective assessments required under the current law.
Payslips, Records, and Closedowns
Employers will face new record-keeping obligations, including pay statements that clearly itemise pay and leave information for every pay period in which an employee works or takes paid leave. Additional requirements will apply to record-keeping for working hours, rosters, leave, and public holiday calculations.
Annual closedown provisions are also being clarified. Employers will be limited to one closedown period per calendar year and must give affected employees at least 21 days' written notice before it begins.
Specific Changes
Annual leave
- Accrues from day one, proportional to contracted hours, rather than after a qualifying period
- Taken in hourly increments instead of full days — a significant help for employees on variable hours
Annual leave cash-up
- Employees can request to cash up 25% of their annual leave entitlement every 12 months, timed to their work anniversary
- Employees with more than 4 weeks' leave can cash out a bigger chunk in absolute terms
Sick leave
- Also earned from day one, proportional to hours worked, up to a 160-hour cap
- Replaces the current model of granting 10 full days upfront — part-time staff will now accrue based on actual hours rather than getting a flat 10 days
Bereavement and family violence leave
- Stays as a fixed number of days, but becomes accessible from day one of employment rather than after a qualifying period
Casual employees ("pay as you go")
- The loading rate rises from 8% to 12.5% to cover all leave types
- In exchange, casuals lose eligibility for paid sick leave and bereavement leave
Additional hours
- Permanent employees who regularly work above their contracted hours get a 12.5% loading on those extra hours
- Likely to matter most for businesses running rosters with minimum guaranteed hours where staff routinely work over
Public holidays
- Simplified to a single eligibility test: did the employee work 50% or more of that day in the preceding 13 weeks
Alternative holidays
- Accrue hour-for-hour rather than as a full day
Leave calculations
- Based on the employee's base wage; variable pay like bonuses and commission is excluded, while fixed allowances remain included
Parental leave
- Annual leave taken after parental leave will be paid at the standard rate — the previous "override" rules that reduced payment amounts are removed
A Longer Transition for Schools
While most employers have two years to prepare, the state schooling sector has been given a substantially longer runway, with its transition period extending to ten years from Royal Assent, reflecting the scale and complexity of payroll arrangements across the education sector.
What Employers Should Do Now
Until 6 August 2028, employers must continue to comply with the Holidays Act 2003 in full. In the meantime, payroll providers now have a fixed legislative specification to build against for the first time since 2003, meaning most businesses will be waiting on software vendors to update their systems rather than needing to rebuild processes independently. Even so, HR and payroll teams should begin reviewing current leave calculation methods now, particularly for casual and variable-hours workers, to ensure a smooth transition when the new hours-based system takes effect.