Employment Leave Bill passed: what employers need to know
The Employment Leave Bill was introduced to Parliament in March 2026 and this week passed its third and final reading. Once enacted, the Bill will repeal and replace the Holidays Act 2003 and significantly change how leave is determined, provided, and calculated in New Zealand.
The Bill was introduced in response to widespread concerns among employers, employees, and payroll providers that the Holidays Act 2003 is complex, unclear and difficult to apply to modern working arrangements. It aims to replace the current regime with a framework that will achieve simplicity, clarity and improved compliance.
Key changes
New categories of working hours
The Bill introduces a new distinction between different types of working hours. This distinction is central to how leave will accrue and whether a leave compensation payment applies.
The Bill distinguishes between:
- standard hours: hours an employee is required to work under their employment agreement, and for which the employer must pay the employee;
- additional hours: hours an employee works above their standard hours (including hours an employee may be required to work under an availability provision), where the employer must make an additional payment for those hours; and
- casual hours: the hours worked by an employee where the employer is not required to offer work and the employee is not required to accept work offered.
Where an employee’s standard hours are not sufficiently specified in their employment agreement or work roster, employers and employees may need to agree a notional roster to determine how leave accrues and is taken.
Leave calculated in hours
One of the most significant changes is the move away from annual and sick leave being expressed in weeks or days.
Annual leave and sick leave will instead accrue in hours, based on an employee’s “standard hours”. Annual leave will accrue at a minimum rate of 0.0769 hours for each standard hour, while sick leave will accrue at 0.0385 hours for each standard hour, up to a maximum balance of 160 hours. Leave will also be taken in hours, with employees using one hour of accrued leave for each hour they take off work.
Leave available from day one
Annual leave and sick leave will start accruing from an employee’s first day of employment.
Bereavement leave and family violence leave will also be available from the start of employment, including for casual employees.
Leave payments
Leave will be paid using a single hourly leave pay rate across all leave types, based on the employee’s lowest hourly rate for the day the leave is taken. Fixed allowances will continue to be paid in full during leave.
Annual leave taken after parental leave will also be paid in the same way as other annual leave. This addresses the current issue where employees returning from parental leave can receive reduced annual leave payments.
Leave compensation payments
Annual and sick leave will not accrue on additional or casual hours. Instead, employees will receive a 12.5% leave compensation payment for those hours.
Cashing up annual leave
Employees may request to cash up 25% of their annual leave balance for cash. Under the current Holidays Act, Employees are only able to cash up one week per year of their total annual leave balance.
Pay statements and record keeping
Employers will be required to provide itemised pay statements for each pay period and keep more detailed records of employees’ hours, leave entitlements and payments. Pay statements for each pay period must include:
- the amount paid to the employee, itemised by category for example, ordinary rate, leave compensation payment, or overtime rate);
- any deductions that the employer is required or entitled to make for income tax or any other authorised purpose;
- the amount of any employer contributions required under other legislation; and
- leave information for the relevant pay period, where applicable.
Public holidays and alternative holidays
A new “otherwise working day” test will apply to employees who work additional days or do not have a specified pattern of work. The new test provides that a public holiday will be an otherwise working day if the employee worked, or was on leave, on at least half of the corresponding weekdays during the previous 13 weeks;
Alternative holidays will also accrue in hours where an employee works on a public holiday that is an otherwise a working day for them.
Next steps
The Bill is expected to receive Royal assent shortly, with the main operative parts of the new Act expected to come into force after a 24-month lead-in period. Employers will then have a further year to update leave terms in employment agreements. Until the new Act comes into force, employers must continue complying with the Holidays Act 2003,
We recommend that employers start preparing now for the upcoming changes, including reviewing employment agreements, policies, payroll processes and record-keeping processes to ensure they will be compliant under the new framework.
If you would like support in assessing the impact of these changes on your business, or preparing for implementation, please contact a member of our employment law team.
Special thanks to Partner Alastair Espie, Associate Lucinda Smith, and Solicitor Connie Wynn-Williams for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
