The Holidays Act 2003 is preparing to take permanent leave as New Zealand’s employment leave framework undergoes a major restructure.
Following the Government’s proposal to reform New Zealand’s employment leave framework late last year, the Employment Leave Act 2026 (“New Act”) received Royal Assent on 6 August 2026. Its principal provisions will come into force on 6 August 2028, replacing the Holidays Act and amending certain provisions of several other Acts.
The New Act introduces significant changes to leave entitlements, public holiday rights and payroll compliance obligations. Employers and payroll providers have until 6 August 2028 to update their systems, and may feel ready for a holiday themselves by the end of the process.
A further one-year transitional period will allow employment agreements to be updated to reflect the new requirements.
Annual leave and sick leave will accrue in hours from the first day of an employee’s employment based on an employee’s standard hours of work, being the hours the employee is required to work under their employment agreement. This replaces the current framework under which annual leave generally becomes available after 12 months of continuous employment.
The new approach is intended to provide a more straightforward and consistent method for calculating leave entitlements. It will also give employees greater flexibility to take leave in hours, including for shorter absences such as doctor’s appointments.
Under the New Act, employees working additional or casual hours will no longer accrue annual leave or sick leave entitlements in the usual way.
Instead, employers will be required to provide compensation of no less than 12.5% of the employee’s ordinary hourly rate for each qualifying hour worked for which the employee is entitled to payment.
For salaried employees, additional hours worked under an availability provision will not attract the 12.5% leave compensation payment if the employee is not entitled to additional payment for those hours.
The New Act introduces a universal hourly-rate framework for calculating payments across different types of leave.
For salaried employees, the applicable rate will be the amount of salary attributable to one standard hour’s work. For employees paid wages, the applicable rate will be the lowest hourly rate payable for the shift during which leave is taken.
A new "otherwise working day" (“OWD”) test will apply when determining whether an employee is entitled to public holiday benefits.
A day will qualify as an OWD if the employee worked, or was on paid or unpaid leave, on that day of the week for at least half of the preceding 13 weeks, subject to any applicable provisions in their employment agreement.
Employees can now request to cash up to 25% of their annual leave balance each year, replacing the current limit of one week.
This may benefit employees with significant accrued leave balances who wish to receive payment instead of taking some of that leave. It may also assist employers seeking to manage their accrued leave liabilities.
While employers are not required to approve these requests, they must respond in writing within 14 days.
Where an employee has more than one role with the same employer, leave entitlements will generally be assessed separately for role. The parties may agree otherwise in writing.
The New Act introduces three categories of work hours:
These categories will play an important role in determining leave accrual and calculating leave compensation payments under the New Act.
Although the New Act essentially doesn’t come into force for two years, employers should start thinking about reviewing their employment and payroll practices.
Businesses should consider:
Early preparation will help minimise implementation risks and place employers in a stronger position when the principal provisions of the New Act take effect.