Holidays Act Reform: What employers need to know
The Employment Leave Bill was introduced to Parliament in March 2026. It is intended to replace the Holidays Act 2003 by reducing complexity and providing a workable framework to ensure employees are paid correctly when taking time off.
The Bill proposes significant changes to how leave entitlements are earned, taken, and paid. Underpinning the new framework is a distinction between different types of working hours:
- Standard hours: The hours an employee is required to work under their employment agreement, and which their employer must pay them for;
- Additional hours: The hours an employee works on top of their standard hours, and which their employer provides additional payment for; and
- Casual hours: The hours worked by an employee where there is no obligation to offer or accept work.
An employee cannot be both a standard-hours and casual-hours employee for the same role.
What is changing?
1. Leave accrual and entitlements
Under the Bill, permanent and fixed-term employees accrue annual and sick leave in hours, starting from their first day of employment.
Annual leave
Annual leave accrues at a rate of 0.0769 per standard hour worked (equivalent to four weeks per year for most full-time employees). It is recorded and taken in hours against the employee’s standard hours.
Annual leave continues to accrue during periods of paid statutory leave, including parental leave, volunteer leave, and jury service, but does not accrue during unpaid leave or periods where the employee receives ACC compensation.
Sick leave
Sick leave accrues at 0.0385 per standard hour worked, up to a cap of 160 hours (equivalent to 10 days per year, with a cap of 20 days for most full-time employees). Sick leave is taken in hours against standard hours and additional hours
Leave balances are not adjusted if the employee’s hours later change over time.
Other leave
Bereavement leave and family violence leave also start accruing from the first day of employment. These entitlements remain days-based, but employees could take part-days.
2. Leave payments
The Bill proposes a single hourly rate across all leave types, based on the employee’s lowest hourly rate for the day the leave is taken. Fixed allowances continue to be paid in full during leave, while variable remuneration, such as commissions and bonuses, are likely be excluded from leave pay rate calculations under the proposed approach.
For all additional and casual hours worked, the Bill introduces a Leave Compensation Payment of 12.5% of the employee’s ordinary hourly rate, instead of accruing annual and sick leave for those hours.
3. Public holidays
For employees who do not have set working days or a regular pattern of work, the Bill introduces a new way to decide whether a public holiday is an “otherwise working day” (OWD). A day is treated as an OWD if the employee has worked that same day of the week (or was on paid or unpaid leave) for at least half of the previous 13 weeks.
The Bill also changes how alternative holidays are calculated and used. Alternative holiday pay accrues at a rate of one hour for every hour the employee works (or is on call) on a public holiday that is an OWD. Alternative holidays can be taken on any day the employee normally works under their employment agreement and could be cashed up at any time.
4. Other changes
Other changes expected under the Bill include:
- the ability for employees to cash out up to 25% of annual leave per year;
- changes to calculations of annual leave for employees returning from parental leave, whereby parents returning to work would be paid at the same rate of annual leave as at any other time; and
- pay statements for each pay period would be required to itemise pay and leave for clarity.
Next steps and key takeaways
The Bill has passed its first reading and is currently before the Education and Workforce Committee, with a Select Committee report due by 13 July 2026.
It is important to note that none of the proposed changes are final until the Bill is passed. There will then be a 24-month transition period before the changes come into force.
Until the Bill is passed, the Holidays Act continues to apply, and employers must ensure that they are providing correct entitlements and payments to employees. There is also a continuing obligation to remediate any underpayments that have occurred due to non-compliance with Holidays Act.
At this stage, we recommend keeping up to date with developments. Employers can start to review how their hours and work patterns are defined, understand where their employees sit across standard, additional, and casual hours, and start planning for upcoming updates to agreements, policies, and payroll processes.
If you would like support in assessing the impact of these proposed changes on your business, or preparing for implementation, please contact our employment law team.
Special thanks to Partner Mark Lawlor and Law Graduate Emma Cunniffe 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.
