New Zealand’s Holidays Act 2003 is being replaced by the Employment Leave Act 2026, with most of the new rules coming into force on 6 August 2028.

The changes are intended to make leave easier to calculate, record and understand. For employers the new system will require changes to payroll, employment agreements and leave policies. However, there is no need to change how you calculate leave yet. The current Holidays Act rules continue to apply until August 2028.

At this stage, our reading of the legislation is preliminary. More detailed guidance is still being developed and we expect to provide further updates as the practical and payroll implications become clearer.

Annual leave will accrue in hours

One of the most significant changes is the move from weeks and days to an hours-based system.

Annual leave will accrue from an employee’s first day at a minimum rate of 0.0769 hours for each standard hour worked. This broadly retains the equivalent of four weeks’ annual leave each year for an employee working consistent standard hours, but makes the entitlement easier to apply to different work patterns.

Employees will be able to take annual leave in hours, including part of a day. They will also be able to ask to cash up as much as 25% of their annual leave balance each year. Employers will still be able to decline a cash-up request.

The Act distinguishes between standard hours, additional hours and casual hours. Annual and sick leave will accrue on standard hours. Additional and casual hours will instead attract a leave compensation payment of at least 12.5% of the employee’s ordinary hourly rate.

For employers with people who work variable schedules, overtime or a mixture of regular and casual hours, accurately defining and recording these categories will become important.

Public holidays and alternative leave

The new Act introduces a clearer test for deciding whether a public holiday would otherwise have been a working day for employees whose work pattern is not specified in their agreement.

The test will generally consider whether the employee worked, or was on paid or unpaid leave, on at least 50% of the corresponding weekdays during the previous 13 weeks. This should give employers a more objective way to assess public holiday entitlements for people with irregular schedules.

When an employee works on a public holiday that is otherwise a working day, alternative leave will accrue hour for hour. This replaces the current approach of providing a full alternative day, regardless of the number of hours worked. Alternative leave will be able to be taken on any day or part-day the employee could otherwise have worked, and employees will be able to request that it be cashed up at any time.

Sick leave will be proportionate to standard hours

Sick leave will also accrue in hours from the first day of employment, at a minimum rate of 0.0385 hours for each standard hour worked. The minimum accumulated balance will be capped at 160 hours, although employers and employees can agree to more generous terms.

This means part-time employees will accrue sick leave in proportion to their standard hours, rather than receiving the same 10 days as a full-time employee after six months. For example, someone working two standard days a week would generally accrue the equivalent of about four of their working days each year.

From an employer’s perspective, particularly in organisations with a large proportion of part-time staff, this appears to be a practical and reasonable change. It aligns the amount of leave earned more closely with the hours an employee normally works.

Paid parental leave

There is also a positive change for employees returning from parental leave. Annual leave taken after parental leave will be paid in the same way as other annual leave, rather than potentially being paid at a reduced rate because of the time spent away from work.

This should make calculations easier and provide a better outcome for new parents. Employers should be aware, however, that it may also create additional wage costs that need to be allowed for in future budgets.

Bereavement and family violence leave

Bereavement leave and family violence leave will be available from an employee’s first day, removing the current six-month qualifying period. This will also apply to casual employees.

These two types of leave will remain day-based, although employees will have more flexibility to take a whole or part day.

What have payroll providers said?

Payroll providers, such as Smartly and Xero Payroll, have two years to update and test their systems, but much of the detailed technical guidance is still to come. Employment New Zealand says it is working with payroll providers on guidance covering system changes, the conversion of existing leave balances into hours and the transition to the new law.

What should employers do now?

The most important point is that the law has not changed yet. Employers must continue using the current Holidays Act rules until 6 August 2028 and cannot introduce the new calculations early.

There is no need for an immediate payroll overhaul, but it is worth considering a few practical steps:

• Make sure current leave balances and payroll records are accurate.
• Identify employment agreements and policies that refer to the Holidays Act or describe leave in weeks or days.
• Review how clearly agreements record standard hours and working patterns, particularly for part-time, variable-hours and multi-role employees.
• Consider future cost implications, including the treatment of additional hours and annual leave following parental leave.

Larger employers and organisations with complex rosters or collective agreements may need to begin planning earlier. Employment New Zealand recommends reviewing agreements and policies during late 2026 and early 2027, with implementation work taking place through 2027 and the first half of 2028.

Final thoughts

The current Holidays Act contains several different leave payment calculations. The new Act moves to a consistent hourly approach across leave types, using a leave hourly rate.

We view this change from daily to hourly calculations as largely practical and sensible. It should make payroll calculations easier to manage and reduce some of the uncertainty that has contributed to errors under the present legislation.

As always, the detail will matter. We will provide further updates once more guidance is available and we have had the opportunity to work through the implications in greater depth.

If you would like help reviewing your payroll records or planning for the financial impact of the new leave rules, please talk to us.

References

• Employment New Zealand: Changes to leave coming in 2028
• MBIE Explainer: What’s changing with employment leave
• RNZ: Employment Leave Bill explained, how annual and sick leave entitlements are changing
• Smartly: What the proposed Employment Leave Act could mean for you

This article provides general information only. Employment arrangements can vary, and employers should obtain appropriate payroll, HR or legal advice for their circumstances.