Proposed Employment Leave Act
– What You Need to Know

30 MARCH 2026 – UPDATE

The Government is progressing significant reform to New Zealand’s leave legislation. The proposed Employment Leave Bill was introduced into Parliament earlier this month and is set to replace the Holidays Act 2003.
The Employment Leave Bill is currently at Select Committee stage, with a report due by 31 July 2026. While changes are not yet final, the direction of reform is clear and will have a significant impact on payroll, employment agreements, and how leave is managed in practice.

What is Changing?
At its core, the proposed Act is designed to simplify leave calculations and make them more consistent and transparent.
The biggest shift is moving from a mix of weeks, days, and complex formulas to an hourly-based system for annual and sick leave.

Quick Comparison (Current Act vs Bill)

Key Proposed Changes
1. Leave will accrue in hours from day one – annual and sick leave will no longer be granted in blocks (e.g. 4 weeks after 12 months). Instead:
• Annual leave will accrue each pay period based on hours worked
• Sick leave will also accrue progressively from the start of employment.

This removes the need to track entitlement dates and anniversary-based calculations.

2. Leave is tied to contracted (standard) hours only and new concepts are introduced:
• Standard hours = contracted hours
• Additional hours = hours worked beyond that
• Leave will only accrue on standard hours.

3. Additional hours and casual work will be paid differently. Rather than accruing leave, additional and casual hours will attract a 12.5% leave payment (on top of wages).
This replaces the current 8% holiday pay approach for casual employees and extends a similar concept to extra hours worked by permanent employees.

4. Public holidays remain, but the test for whether a day is an “otherwise working day” will be more formula-based.
For employees with variable patterns, this will be determined using a 13-week lookback.

5. All leave types (annual, sick, bereavement, alternative leave) will be paid using a single hourly rate, rather than the current mix of:
• Relevant daily pay
• Average daily pay
• Ordinary weekly pay.

This is intended to significantly reduce payroll complexity.

When Will This Happen?
The Bill is expected to pass into law before the next election. If passed, the Act is expected to come into force approximately two years after Royal Assent.
Importantly … The changes will apply from a set commencement date and not employee-by-employee anniversaries. Existing leave balances will need to be converted into hours at that point.

Our View
This is one of the most significant changes to employment legislation in New Zealand in quite some time.
Although implementation is still some time away, early awareness and planning will make a real difference – particularly for businesses with:
• variable hours
• part-time workforces
• or complex payroll environments.

If you would like support understanding how these changes may impact your business, or preparing for the transition, get in touch with our team.

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Keep up to date with the proposed changes to our Holidays Act

30 OCTOBER 2025 – UPDATE

In September this year, the Government announced plans to replace the Holidays Act 2003 with a new Employment Leave Act. The goal is to give both employers and employees more confidence and certainty with straightforward rules they can understand and apply.

We’ll be sharing updates and practical advice through our dedicated Holidays Act Updates newsletter as the new law takes shape — so there’ll be plenty of time to get ready.

So, what’s changing?
Some of the key proposals include:

• Switching to hours-based accrual for annual and sick leave
• Introducing a clearer test for public holiday entitlements

The good news? There’s no need to panic.
The proposed changes haven’t been passed into law yet. And once it does, there’ll be a 24-month transition period before it comes into effect. That gives plenty of time for payroll providers and employers to make any necessary updates.

For now, there’s no rush…
But it’s worth keeping two things in mind:

• Check that your payroll software provider will be updating their system
• Make sure your employment agreements can be easily updated when the time comes

If you have any questions, feel free to give us a call on 07 823 3250 or send an email to [email protected]

You can also read the official Government announcement here.