Changes to employee leave marks a significant reform milestone of New Zealand's employment legislation.
Created to replace the current Holidays Act 2003, the framework of the Employment Leve Act has been designed to make annual leave more transparent and easier for business owners and employees to understand.
While this is a major change to how you as a business owner will need to calculate and manage leave entitlements, you don’t need to take any immediate action.
The New Zealand Government has built in a 24-month transition period, starting on 7 August 2026, before the new leave system is fully in effect. This provides you with the necessary time to update business systems, employee forms and contacts, and discuss the changes with your team to ensure a smooth transfer.
What is changing?
The new legislation simplifies leave calculations and improves clarity for business owners and employees.
Current system: All employees are entitled to four weeks’ annual leave after twelve months’ continuous employment.
New system: Employees start accruing annual leave from their first day of employment. This is calculated at a rate of no-less than 0.0769 hours per standard hour worked. This equates to four weeks’ leave for employees who's standard 38 hour week does not change during a year.
- Annual and sick leave will also accrue in hours rather than weeks or days. This is based on an employee's standard hours of work.
- Sick leave accrues at 0.0385 hours per standard hour worked.
- Annual, sick, bereavement, and family violence leave become available from the first day of employment.
- A single hourly rate will be used to calculate all leave payments.
- A new 12.5% Leave Compensation Payment will apply to additional and casual hours worked, instead of accruing annual and sick leave based on those hours.
- Payslips will be mandatory and will need to include more details about leave and pay information, making entitlements easier to understand.
- Employees will be able to cash up to 25% of their annual leave balance each year.
- A new "Otherwise Working Day" test will determine leave entitlements for employees with irregular work patterns.
- The penalty relating to annual leave payments for employees returning from parental leave will be removed.
To help you with the transition of calculating leave, the Act includes detailed formulas so you can convert existing employee leave balances from weeks and days into hours. When the new Act officially comes into force in August 2028, the converted leave will be paid as if it were leave accrued under the new Act.
Transitioning to the new legislation
The 24-month implementation period:
- There will be a 24-month implementation period between when the Act received Royal assent and when it comes into force on 6 August 2028. This provides time for payroll providers and employers to make necessary changes to business systems.
- Until the Holidays Act 2003 is repealed and the new Act comes into force in 2028, all existing rules still apply. This means you still must comply with the current Holidays Act and ensure you’re providing your employees with the correct entitlements and payments.
Three years to update your employment agreements
- After the Act officially comes into force on 6 August 2028, there will be an additional year for employers and employees to agree to contract terms consistent with the new legislation framework (for example, by providing a compliant accrual rate for annual leave). In that year, if terms have not been updated, employers must comply with any provisions in the employment agreement more favourable than those in the Act.
- If employment agreements are not updated one year after the Act comes into force, new minimum statutory terms override any conflicting provisions in employment agreements.
This provides you and your employees with an opportunity to proactively negotiate employment agreements.
Casual employees
Current system: Employers and workers can agree to pay 8% of gross earnings each pay period instead of paid annual leave if work is intermittent or irregular, but use of “Pay as you go” is not required. For sick leave, many casual workers do, technically, become entitled to sick leave – although they are unlikely to benefit from this entitlement in practice due to impracticality and compliance issues.
New system: As in the case of additional hours, a leave compensation payment (LCP) (set at a rate of 12.5% of a worker’s ordinary hourly rate) will be paid for each ‘casual’ hour of work in every pay period, instead of that work accruing annual and sick leave.
What does this mean for employers?
At this stage, the most important message is:
- Business as usual continues for now.
- Current Holidays Act requirements remain in place until the new legislation comes into force 6 August 2028.
- This two-year lead-in period to allow for payroll and system changes.
- A year will be available after 6 August 2028 to update employment agreements where necessary.
What should you do next?
Before making any changes to your current business operations, as an employer it’s recommended you:
- Continue complying with the current Holidays Act 2003 requirements and obligations.
- Stay up to date with new information as it becomes available from the MBIE.
- Consider how the new hours-based accrual leave system could affect your workforce and payroll processes.
Peninsula is here to help
This reform represents one of the most significant changes to leave legislation in decades. However, the transition timeframe has been intentionally designed to give your business and employees time to understand the changes, update systems, and implement any necessary adjustments without causing disruption to your business operations.
Peninsula will continue to provide practical guidance as further information becomes available.
Need help understanding New Zealand’s Employment Leave Act? Peninsula can help. Our team provides 24/7 advice for your business and industry. Call us on 0800 215 024.
Please Note: This article is general information only. The contents of this article does not constitute legal advice and is not intended to be a substitute for legal or other professional advice and should not be relied upon as such. Your specific circumstances after publication may affect the completeness or accuracy of this information. To the maximum extent permitted by law, we disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, currency and reliability of the information on this website, and to seek professional advice where necessary. Nothing contained on this website is to be interpreted as a recommendation to use any product, process or formulation. For clarity, Peninsula does not recommend any material, products or services of any third parties.