Employment Leave Act 2026 now passed
New Zealand’s biggest overhaul of employee leave entitlements in more than 20 years is on its way, with the Employment Leave Act 2026 passing its third reading in Parliament on 6 August 2026.
The legislation aims to replace many of the cumbersome arrangements under the Holidays Act 2003 with a simpler framework that better reflects modern employment practices and makes payroll calculations easier for employers.
One of its central features is the introduction of a simpler, hours-based framework for leave entitlements. The main provisions in the Act will come into force two years after receiving Royal Assent (in 2028), allowing employers and payroll providers time to transition and ensure compliance.
Supporters of the legislation say it offers benefits for both employers and employees. For employers, it provides greater simplicity in calculation methods, while employees gain some increase in rates and benefits. Time will tell whether the reforms ultimately deliver the easy and effective changes promised.
Why the Law is changing
The Holidays Act has long been criticised for being complex and difficult to administer, resulting in widespread payroll errors and significant remediation costs across both public and private sectors. The new Act aims to create a more transparent and consistent approach to leave management and payment for employees and employers.
Some of the key changes are set out below.
Leave accrual replaces current entitlement-based system
Annual leave and sick leave will accrue in hours from day one of employment, rather than being provided as fixed entitlements that an employee can access after a qualifying period. Employees will build leave entitlement over time, based on their agreed standard working hours.
For example, rather than waiting until the 12-month anniversary to become entitled to annual leave, employees will begin accruing leave from their first day of work and will be able to access the leave they have accrued.
Employees can access the following types of leave from their first day of employment:
Annual leave
Sick leave
Bereavement leave
Family violence leave
Leave taken in hours
Employees will use leave hour-for-hour and can take partial days off more easily, rather than needing to use whole days in many situations.
The Act defines three types of working hours:
Standard hours
Additional hours
Casual hours
New treatment of additional and casual hours
The Act creates separate treatment for additional or casual hours worked outside an employee's agreed standard hours. Rather than accruing leave on these hours, employees will generally receive a 12.5% leave compensation payment when the hours are worked.
Simpler leave payments
The Act introduces a single hourly rate method for paying leave, replacing the current complex calculations that compare multiple pay measures. This is expected to reduce payroll errors and simplify compliance obligations for employers.
Greater flexibility to cash up leave
Employees will be able to be paid cash for up to 25% of their annual leave balance after the first 12 months of employment, providing more flexibility than the current arrangements.
Implications for employers
Employers will need to:
Review payroll systems and leave calculations.
Define employees' standard hours more clearly.
Update employment agreements and leave policies.
Prepare for a two-year implementation and transition period.
If you need any assistance in this area or want to know more, please contact one of our team for more information.
