The Holidays Act is being replaced: What employers need to know

Employment Law
Oct 19 2026

The enactment of the Employment Leave Act 2026 (“Act”) marks the most substantial redesign of New Zealand’s statutory leave framework in more than two decades.

The Act received Royal Assent on 6 August 2026. It will come into force on 6 August 2028, when it will repeal and replace the Holidays Act 2003. The new rules will apply from the beginning of each employee’s first pay period starting on or after that date. The two-year lead-in period is intended to give employers, payroll providers and employees time to prepare for the transition. A few sections come into effect prior to 6 August 2026, including the regulations for remediation processes and the pre-commencement consultation remediation process regulations which came into force on 7 August 2026. The definition of ordinary weekly pay, the amount of parental leave payment, the information relating to employees that must be provided, and other incidental provisions come into force on 1 July 2027.

Importantly, the Holidays Act 2003 continues to govern leave until the new legislation takes effect. Employers cannot move employees onto the new statutory rules before 6 August 2028, even if their payroll systems are ready. Existing obligations to identify and remediate historical Holidays Act underpayments also remain.

A new focus on working hours

At the centre of the new framework is a distinction between three categories of hours:

  • Standard hours, being hours the employee is required to work pursuant to the employment agreement and for which the employer is required to pay them;
  • Additional hours, being qualifying hours worked by an employee in addition to their standard hours, including hours worked under an availability provision. Where the hours are not worked under an availability provision, they must be hours the employer is not required to offer, which the employee is entitled to refuse, and for which the employee receives an additional payment.
  • Casual hours, being hours worked under a genuinely casual arrangement where the employer is not required to offer work and the employee is not required to accept it.

These classifications will determine whether an employee accrues annual and sick leave or instead receives a leave compensation payment.

Annual leave will accrue in hours

The present system, under which an employee becomes entitled to four weeks’ annual holidays after 12 months’ continuous employment, will be replaced with continuous accrual in hours.

Employees with standard hours will accrue annual leave from their first day of employment at a minimum rate of 0.0769 hours for each standard hour. This is intended to produce the equivalent of four weeks’ annual leave each year where the employee’s standard hours remain consistent. Leave will be recorded and taken in hours, rather than being held as an entitlement expressed in weeks.

Annual leave will also accrue during specified periods when the employee is not actually working, including paid statutory leave, parental leave, volunteer leave and jury service. It will not accrue during unpaid leave or periods when the employee is receiving accident compensation and is not working.

Employees will also be able to request that up to 25% of the relevant annual leave balance be cashed up. An employer may decline a request and may adopt a policy that it will not agree to cashing up annual leave. Employers cannot require or pressure employees to make such a request.

Sick leave will become proportionate

Sick leave will also accrue in hours from the employee’s first day of employment. The minimum accrual rate will be 0.0385 hours for each standard hour or part of a standard hour, subject to a maximum accumulated balance of 160 hours.

This represents an important change for employees as the employee’s entitlement will accrue in proportion to their standard hours. Employees will also be able to take only the hours of sick leave required, rather than necessarily using a full day for a shorter absence.

Leave compensation for casual and additional hours

Employees who work qualifying casual or additional hours will receive a leave compensation payment of 12.5% of the employee’s ordinary hourly rate for those hours. Annual leave and sick leave will not accrue on the same hours.

This is broader than the current 8% pay-as-you-go holiday pay model. The increased percentage reflects that the payment compensates for both annual and sick leave that would otherwise accrue. The payment will need to be correctly identified and paid with the relevant wages.

A single hourly approach to leave payments

The Act replaces several of the Holidays Act’s payment concepts with a more consistent hourly leave payment model. Every hour of statutory leave taken will be paid using an hourly leave pay rate determined under the new rules. Fixed contractual allowances that do not vary in value will generally continue to be paid in full during leave.
Annual leave taken after parental leave will also be paid using the ordinary leave payment methodology. This removes the present possibility that annual holidays taken after returning from parental leave are paid at a reduced average rate because of the period of unpaid or lower-paid absence.

Bereavement and family violence leave from day one

Bereavement leave and family violence leave will be available from the employee’s first day of employment. The underlying entitlements will remain expressed in days, but employees will be able to take the leave in whole or part days.

This removes the current six-month eligibility threshold. Employers will need to update onboarding information, leave policies and payroll settings so that eligible employees are not incorrectly prevented from accessing these forms of leave early in their employment.

Public holidays and alternative leave

The Act introduces a more prescriptive approach to determining whether a public holiday is an “otherwise working day”. Under the new Act, the starting point is the employee’s agreed working arrangement. If the employment agreement specifies the days the employee works, or establishes a clear pattern of working days, a public holiday falling on one of those days will generally be an otherwise working day. A statutory look-back test may be required where the employee’s working days are not specified, or where the employee has worked additional days outside the days or pattern recorded in their agreement. The employer must examine the corresponding day of the week during the relevant 13-week period. If the employee worked, or was on paid or unpaid leave, on at least half of those corresponding days (over the previous 13 week period), the public holiday will be treated as an otherwise working day.

For example, if a public holiday falls on a Monday and the employee does not have Mondays recorded as an agreed working day, the employer will look at the Mondays in the relevant 13-week period. If the employee worked, or was on leave, on at least 50% of those Mondays, the public holiday will be an otherwise working day. If the threshold is not met, it will not be an otherwise working day under that test.

Alternative leave will also be recorded in hours. Where an employee works on a public holiday that is otherwise a working day, the employee will generally accrue one hour of alternative leave for each qualifying hour worked or spent on call under the statutory rules. Alternative leave may be taken on a day the employee could have worked and may be cashed up by agreement.

Preparing for the Employment Leave Act

While the new leave rules do not take effect until August 2028, the scale of the changes means employers should start preparing well in advance. Employment agreements, leave policies and payroll systems will all need to be reviewed to ensure they are ready for the new framework.

If you have questions about how the Employment Leave Act will affect your workplace or would like advice on preparing for the changes, contact our employment law team.

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