The Employment Leave Act 2026: What New Zealand Employers Need to Know
New Zealand’s leave rules are about to undergo their biggest change in more than 20 years. The Employment Leave Bill has now received its Royal assent and become the Employment Leave Act 2026, replacing the Holidays Act 2003. The new system will not start immediately and most changes will take on 6 August 2028. Until then, employers must continue to follow the Holidays Act 2003.
Although employers have two years to prepare, the changes will affect payroll systems, employment agreements, leave policies, rosters and pay statements. It is worth starting early, especially if you have casual employees, variable hours, overtime or commission payments.
Why is the Holidays Act being replaced?
The Holidays Act has caused problems for employers and employees for years. It can be difficult to determine:
What an employee’s “week” looks like,
Whether a day is an otherwise working day,
How much annual leave an employee has,
What rate should be used to pay leave, and
How leave should be handled when hours change.
The new legislation is intended to create a clearer, hours-based system. Annual and sick leave will generally accrue in hours rather than being provided in weeks or days. A common hourly payment method will also apply across the main forms of leave.
The Government says this should give employers greater confidence that their payroll calculations are correct. However, moving to the new system will still require careful planning.
What will change under the Employment Leave Act 2026?
There are a number of important changes to how leave is recorded, accrued and paid which employers will need to know.
Annual leave will accrue in hours
The most important change is that employees will progressively accrue annual leave.
At present, most employees become entitled to four weeks’ annual holidays after 12 months of continuous employment. Under the new system, employees will accrue annual leave from their first day of work.
Annual leave will accrue at a minimum rate of 0.0769 hours for every standard hour. This is roughly equal to four weeks of leave over a full year. For example, an employee who works 40 standard hours a week will generally accrue about 3.08 hours of annual leave each week. This means employers will no longer wait for an employee’s anniversary before adding a full four-week entitlement. The employee’s available balance will build up throughout the year.
Employers will need payroll systems that can:
Identify an employee’s standard hours,
Accrue leave during each pay period,
Display balances in hours,
Adjust correctly when standard hours change, and
Separate standard, additional and casual hours
The new law separates working time into three categories.
Standard hours are the hours an employee is required to work under their employment agreement. Annual and sick leave will normally accrue on these hours.
Additional hours are hours worked on top of the employee’s standard hours which they cannot usually be required to work.
Casual hours apply where there is no continuing expectation that work will be offered or accepted.
This distinction will be important.
Employers cannot simply label hours as casual or additional to avoid leave accrual. The written agreement and the real working arrangement will both matter. Employment agreements should clearly state the employee’s standard hours or include a reliable method for identifying them.
Additional and casual hours will receive a 12.5% payment
Annual and sick leave will not normally accrue on additional or casual hours. Instead, the employer will pay a 12.5% Leave Compensation Payment, or LCP, for those hours. The LCP will be paid on top of the employee’s ordinary pay for each relevant hour. For example, if an employee’s ordinary hourly rate is $30, the LCP would generally be $3.75 for each additional or casual hour worked.
The 12.5% payment is intended to compensate for annual leave, sick leave and other leave-related benefits that do not accrue on those hours. It is higher than the 8% holiday pay that some employees currently receive.
This will be a significant payroll and budgeting change for businesses that use casual staff or regular overtime. Employers will need to make sure the LCP is:
Calculated using the correct ordinary hourly rate,
Paid in addition to wages,
Clearly identified in payroll records and pay statements, and
Applied only to hours that legally qualify as casual or additional.
Sick leave will also accrue in hours
The current system generally gives eligible employees 10 days of sick leave after six months. This can result in employees with very different hours receiving the same number of days.
Under the new law, sick leave will accrue from the first day of employment at a minimum rate of 0.0385 hours for each standard hour. For a person working 40 standard hours a week, this works out at about 80 hours of sick leave each year. A part-time employee will accrue a proportionate amount. The standard maximum balance will be 160 hours, unless the employer agrees to provide more.
This change will remove the six-month waiting period, but a new employee may have only a small sick leave balance at first. Employers will still be able to allow sick leave in advance.
Leave will be available from the first day
Annual leave and sick leave will begin accruing immediately. Bereavement leave and family violence leave will also become available from the first day of employment. Employers will therefore need to remove policies or agreement terms that say an employee must complete six months of employment before becoming eligible for these types of leave. This does not mean that a new employee will receive a full annual or sick leave allowance on day one. Annual and sick leave will build up as the employee works standard hours.
Employees will take leave in hours
Under the new system, employees will generally take annual and sick leave against the hours they would otherwise have worked. If an employee was due to work eight standard hours, taking the whole day as annual leave would usually reduce their balance by eight hours. This should make part-days easier to manage. It will also reduce arguments about whether a “day” means four hours, eight hours or something else.
The employer will need reliable information about when the employee would otherwise have worked. This may come from the employment agreement, a work roster, or a notional roster agreed between the employer and employee. A notional roster may be needed where the agreement provides standard hours but does not clearly state when those hours are worked. It must be recorded in writing and kept up to date.
Annual leave requests will still require agreement
Employers and employees will still be expected to make reasonable efforts to agree on when annual leave is taken. An employer must not unreasonably refuse an employee’s request.
Employees with enough accrued leave may request dates that give them at least 14 consecutive days away from work. The period can include weekends and other days they would not normally work. If the parties cannot agree, an employer may be able to direct the employee to take annual leave. At least 14 days’ written notice will generally be required.
Employers should continue to manage leave balances actively. An hours-based system does not remove the need to encourage employees to take genuine breaks from work.
Employees may ask to cash up more leave
The new law will allow an employee to request payment for up to 25% of their annual leave balance each year. This is more flexible than the current rule, which generally allows an employee to ask to cash up one week of their four-week entitlement.
The request must come from the employee. An employer cannot pressure an employee to cash up leave or make it a condition of employment. Employers will be able to decline requests and may adopt a policy preventing annual leave cash-ups.
Businesses should decide whether they will consider these requests and put a consistent policy in place.
A single hourly rate will be used to pay leave
The Act introduces a common leave payment method for annual leave, sick leave, alternative leave, bereavement leave, family violence leave and unworked public holidays that are otherwise working days.
Each relevant hour will be paid using the employee’s applicable leave payment rate. The rules take account of the employee’s pay arrangement and certain variable payments. Fixed allowances that remain payable during leave must also continue to be paid.
This will replace several calculations used under the Holidays Act, including ordinary weekly pay, average weekly earnings, relevant daily pay and average daily pay. The method should be simpler once payroll systems are configured, but employers must still supply accurate information about wages, salary, commission, piece rates and allowances.
Public holidays and alternative leave
The Act introduces a clearer otherwise working day test. Where a day is not clearly a working day under the employee’s agreement or roster, the employer may need to consider whether the employee worked, or was on leave, on the corresponding day in at least 50% of the previous 13 weeks.
Alternative leave for working a public holiday will accrue in hours. This is a change from the current approach, where an alternative holiday is usually treated as a whole day. Employers with variable rosters will need to ensure their systems hold enough work-pattern information to apply the new test.
Pay statements will become compulsory
Employers will be required to provide employees with an itemised pay statement for each pay period. It will need to show prescribed information about pay, hours and leave. Family violence leave information must be protected and cannot be openly identified on the statement.
Businesses that do not currently provide payslips will need to introduce them. Those that already provide payslips should check whether their system can display the new leave balances and payments correctly.
What happens to existing leave balances?
Existing annual holiday, sick leave and alternative holiday balances will not simply disappear. Employers will need to convert applicable balances into hours under the transitional rules. This is likely to be one of the most important parts of implementation. Poor data or an incorrect conversion could create underpayments, overstated balances or employee disputes.
Before conversion, employers should check:
Current annual holiday and sick leave balances,
Employees’ normal and variable working patterns,
Outstanding alternative holidays,
Any annual holiday pay recorded separately from entitled leave, and
Whether previous Holidays Act calculations have been correct.
Keep a clear record of how every balance was converted.
When do employers need to make the changes?
The new Act will come into effect on 6 August 2028. Employers will then have a further year to update affected leave wording in existing employment agreements. However, the new minimum entitlements will apply from the commencement date even if an old agreement has not yet been updated.
Until commencement, employers must continue applying the Holidays Act 2003. Do not start using the new accrual rates or LCP early unless an existing lawful agreement independently provides those benefits.
What should employers do now?
Employers do not need to change employees’ balances immediately, but they should begin preparing. Start by speaking with your payroll provider. Ask when its updated system will be available and how it will handle conversion, LCP payments, notional rosters and pay statements. You should also:
Audit your leave and payroll data.
Identify employees with unclear or variable hours.
Review casual and overtime arrangements.
Check that employment agreements accurately describe working hours.
Budget for the 12.5% LCP on additional and casual hours.
Plan updates to leave policies and employment agreements.
Explain the changes to managers and employees before implementation.
Keep following the Holidays Act until the new law begins.
The two-year transition period may sound generous, but payroll changes often take longer than expected. Early preparation will make the final conversion much safer.
FAQs
Is the Employment Leave Act 2026 already in force?
The Act has now received royal assent and will come into effect on 6 August 2028. Employers must follow the Holidays Act 2003 until then.
Will employees still receive four weeks of annual leave?
The minimum value remains broadly equivalent to four weeks, but leave will accrue in hours at 0.0769 hours for each standard hour rather than becoming due as four weeks after 12 months.
Will all employees get 10 sick days?
No. Sick leave will accrue in hours based on standard hours worked. A full-time employee working 40 hours a week will accrue about 80 hours a year. Part-time employees will accrue proportionately less.
Can employees use sick leave immediately?
Sick leave starts accruing from the first day. Employees can use the hours they have accrued. An employer may also agree to sick leave in advance.
What happens to casual employees?
Genuine casual hours will generally attract a 12.5% LCP instead of annual and sick leave accrual. Employers must still make sure that the arrangement is genuinely casual in practice.
Do employment agreements need to be changed now?
Not immediately. However, employers should review them now and plan updates. Affected leave terms in existing agreements must generally be updated within one year after the new Act commences.
Do employers have to provide payslips?
Under the new system, itemised pay statements will be compulsory. Payroll processes will need to be ready by the commencement date.
Where can employers get help?
Employers should also work with their payroll provider and seek HR or employment-relations advice where hours, balances or agreements are complex.
If you have concerns about how leave is currently being recorded and managed in your organisation, or need help planning for the changes to the employment leave legislation, get in touch with Employer Direct today. Employer-Direct.co.nz | 0800 612 355
Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal advice. While we strive to keep the information accurate and up to date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. For specific legal advice tailored to your situation, please contact a qualified legal professional.
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