Key Insights
- Annual and sick leave will accrue in hours from day one.
- Most employers have a 24-month transition period to prepare.
- Part-time sick leave will be based on hours worked, not 10 days.
For years, New Zealand employers have struggled to apply leave rules consistently, particularly where staff work variable hours, receive allowances or change their working patterns.
The new Employment Leave Act 2026, however, is designed to replace that complexity with an hours-based system for earning and taking leave.
The law has passed and will replace the Holidays Act 2003. Most employers have a 24-month implementation period from Royal Assent, so the current Holidays Act rules still apply until the new regime begins. Here is everything you need to know.
What is the Employment Leave Bill in New Zealand?
The Employment Leave Bill was the legislation that replaced the Holidays Act 2003 with the Employment Leave Act 2026. Its central change is simple on paper: annual leave and sick leave will accrue in hours from an employee’s first day, rather than arriving as a later entitlement expressed in weeks or days.
The reform responds to long-running problems under the Holidays Act, particularly for people with variable hours, overtime, commissions, allowances or changing work patterns. The Ministry of Business, Innovation and Employment (MBIE) says the goal is a clearer framework that gives employees and employers greater certainty.
When does the Employment Leave Act start?
For most workplaces, the Act starts two years after Royal Assent. Employers must continue following the Holidays Act 2003 until the new law takes effect, including their obligations to correct historical underpayments caused by Holidays Act non-compliance.
The state schooling sector has a longer transition period, with the new regime applying 10 years after Royal Assent. Employers should watch for final Employment New Zealand guidance, payroll-provider updates and commencement information before changing policies or systems.
How will annual leave change?
Annual leave will build up from day one at a minimum rate of 0.0769 hours for every standard hour worked. For someone with stable full-time hours, this is designed to equal four weeks of annual leave a year.
An employee will use one hour of annual leave for each hour away from work. This allows part-day leave and means a leave balance should not expand or contract simply because someone later changes their work pattern.
Employees may request to cash up to 25 percent of their annual leave balance in a year. Under the existing system, cashing up is limited to one week of annual holidays each year.
How will sick leave change?
Sick leave will also accrue from day one, at a minimum rate of 0.0385 hours per standard hour worked, up to a cap of 160 hours. For a person working five equal days a week, the annual rate is intended to approximate 10 working days.
The major practical change is for part-time employees. Their sick leave will reflect their standard hours, rather than giving every eligible employee the same 10-day annual entitlement. Employees can take sick leave in part days, using the number of hours they are absent.
The culture cost of getting leave wrong
In 2016, MBIE estimated that Holidays Act underpayments could affect more than 700,000 New Zealand employees, with arrears potentially exceeding $2 billion. Health New Zealand’s remediation liability alone is now estimated at $2.2 billion, covering roughly 90,000 current and 130,000 former staff.
Behind those numbers sits a cost nobody invoices for. An employee who discovers they were underpaid for six years reads that as evidence about whether their employer can be trusted to do right by them when no one is checking.
Fairness is one of the five dimensions Great Place To Work measures in the Trust Index, alongside credibility, respect, pride and camaraderie. It covers exactly this territory: whether people believe they are paid fairly and treated equitably. Payroll accuracy tends to show up in survey data long before anyone names it as a culture issue.
The 24-month transition is the window to get ahead of that. Employers who explain the change in plain language, show people how a new balance was calculated, and find errors before their staff do will carry far less trust debt into 2028 than those who leave it to payroll to sort out.
See where trust sits in your organisation before the change lands
What are standard, additional and casual hours?
The Act uses three categories of work hours, which determine how leave is earned and paid.
Standard hours are the hours an employee is required to work and that the employer must pay for under their employment agreement. Annual and sick leave accrue on these hours.
Additional hours are paid hours worked on top of standard hours, such as extra shifts or overtime. Instead of building annual and sick leave, they attract at least 12.5 percent leave compensation paid each pay period.
Casual hours are worked where neither side is required to offer or accept work. Casual work also attracts at least 12.5 percent leave compensation, rather than annual and sick leave accrual.
How will leave be paid?
A single hourly leave-pay rate will apply to annual leave, sick leave, bereavement leave, family violence leave and alternative holidays. MBIE says it will be based on the employee’s lowest hourly rate for the day leave is taken, with fixed allowances continuing in full during leave.
Annual leave taken after parental leave will be paid under the same approach as other annual leave. This is a significant change from the current system, where returning parents can face reduced holiday pay due to the calculation method used after parental leave.
What changes for public holidays?
Public holiday entitlements will use a new “Otherwise Working Day” test, intended to make it clearer whether a public holiday would ordinarily have been a working day for an employee. Alternative holidays will also move to hours-based accrual.
This will matter most for employers with variable rosters, seasonal workforces or employees whose hours change from week to week. It is a good reason to audit employment agreements and rostering data well before go-live.
What should employers do now?
Do not rewrite your leave rules yet. The Holidays Act 2003 remains in force until commencement, and changing policy early creates compliance risk under the law still applying to you.
Use the transition period to get your data and your people ready. Five things worth starting now:
Map your hours. Match every employee’s standard, additional and casual hours against their employment agreement and your payroll data. These three categories decide how leave is earned and paid, so getting them wrong contaminates everything downstream.
Pin down your payroll provider. Ask for their transition roadmap and testing timetable in writing. Providers are rebuilding for the entire country on the same deadline, so a place in the queue is worth securing early.
Separate out remediation. Existing leave balances and any historical underpayment issues need their own treatment. Those obligations survive the transition and should not be folded into the migration.
Review your variable pay. Allowances, overtime, commissions and roster practices all behave differently under the new rules. Fixed allowances continue in full during leave, and additional hours attract leave compensation rather than accrual.
Plan the conversation. Brief managers before balances change format. A person whose leave suddenly reads as 152 hours instead of four weeks will ask what happened to their holiday, and the answer should not be improvised at the counter.
A practical culture test is whether employees can understand their leave balance without needing a payroll decoder ring. Great Place To Work’s Trust Index is its confidential employee survey on trust, pride and camaraderie. Used well, this kind of feedback can show where payroll and policy changes are creating confusion before frustration turns into disengagement.
FAQs
Has the Employment Leave Bill passed in New Zealand?
Yes. The Employment Leave Bill passed Parliament in July 2026 and became the Employment Leave Act 2026, replacing the Holidays Act 2003. The change is substantial, but it is not immediate for most employers. A two-year implementation period applies before the new leave system begins. Until then, employers must keep following the Holidays Act, including existing requirements around annual leave, sick leave and any historical remediation.
When will the Employment Leave Act start in New Zealand?
For most New Zealand employers, the Employment Leave Act starts two years after Royal Assent. This transition period is designed to give payroll providers, employers and employees time to prepare for hours-based leave records and calculations. The current Holidays Act remains the law until commencement. State schools have a longer transition period of 10 years after Royal Assent. Employers should rely on official MBIE and Employment New Zealand guidance as implementation details develop.
Will annual leave still be four weeks in New Zealand?
For employees with stable hours, the Employment Leave Act is designed to deliver the equivalent of four weeks’ annual leave a year. The difference is how it is recorded: annual leave will accrue in hours from the first day of employment, at a minimum rate of 0.0769 hours for each standard hour worked. This makes part-day leave easier and helps preserve leave balances when working patterns change.
How does sick leave change under the Employment Leave Bill?
Under the Employment Leave Act, sick leave accrues in hours from day one rather than becoming a set annual entitlement after six months. Employees accrue at least 0.0385 hours for each standard hour worked, up to 160 hours. For many full-time employees, this broadly equates to 10 days a year. Part-time employees will receive sick leave in proportion to their standard hours, rather than the same 10-day entitlement.
Do casual workers get annual leave and sick leave under the new law?
Casual workers will generally receive leave compensation instead of accruing annual and sick leave. The minimum payment is 12.5 percent for casual hours, paid with each pay period. Additional hours worked beyond an employee’s standard contracted hours are treated similarly. Employers will need clear employment agreements and reliable records to distinguish standard, additional and casual hours, since those categories determine how leave is provided.
Last verified 3 August 2026 against MBIE guidance and the passed legislation. Implementation detail will develop as Employment New Zealand releases final guidance. Check official sources before changing policies or payroll systems.
