The Employment Leave Act NZ Signals the Biggest Shift in Workplace Law in Two Decades.

Here is what leaders need to know now 

For many New Zealand businesses, the Holidays Act has been a longstanding source of confusion, cost and operational risk. Even well resourced organisations have struggled to interpret it correctly. The Government’s proposal to repeal it and introduce the new Employment Leave Act NZ is not a routine update. It is a structural reset of how leave is earned, taken and paid. 

This reform sits at the intersection of compliance, payroll, workforce planning and employee experience. Senior leaders who understand the implications early will be better positioned to protect their business, support their teams and avoid the remediation issues that have shaped the last decade. 

The Government has now confirmed the core policy decisions. Draft legislation is expected in early 2026, so we are likely to see the first version of the Bill any day now. What follows is a practical overview of the Holidays Act reform, the confirmed policy decisions and what they mean for New Zealand employers preparing for the next phase of change. 

Why the Holidays Act reform was inevitable 

The current legislation has been widely criticised for its complexity and ambiguity. MBIE has been explicit about the scale of the problem. Employers have struggled to apply the rules consistently, and noncompliance has been widespread across both public and private sectors. The cost of remediation has been significant, with some organisations facing multi-million dollar corrections. 

The proposed Employment Leave Act NZ aims to simplify the system by shifting from a days and weeks based model to an hours based framework. The intention is to create a structure that is easier to understand, easier to automate and more adaptable to modern working patterns. 

For leaders, this is not just a legislative update. It is a chance to reset systems, agreements and processes that may have been patched together over the years. 

Key leave law changes NZ employers need to understand 

The Government has confirmed the core policy decisions. Draft legislation is expected in early 2026, followed by a Select Committee process and a 24 month implementation period once passed. Below is a summary of the confirmed changes. 

1. Hours based accrual for annual and sick leave 

Under the new Employment Leave Act NZ, both annual and sick leave will accrue from day one, in direct proportion to contracted hours. 

• Annual leave accrues at 0.0769 hours per contracted hour 

• Sick leave accrues at 0.0385 hours per contracted hour 

• Sick leave will have a 160 hour cap 

This is one of the most significant leave law changes NZ employers will need to prepare for. It removes the six month wait period and replaces the current definitions of Ordinary Weekly Pay and Average Weekly Earnings with a simpler, more predictable model. 

2. Leave continues during most paid absences 

Leave will continue to accrue during: 

• Paid leave 

• Parental leave 

• Jury service 

• Volunteer leave 

It will not accrue during unpaid leave or ACC periods where the employee is not working.  For employers, this means it will be important to keep a close eye on how paid and unpaid leave are being used. The shift to an hours based system will make patterns more visible, and leaders may find it easier to forecast leave liability and understand the true cost of extended paid absences. It also highlights the benefit of having steady, well communicated processes for unpaid leave, so entitlements are managed in a way that reflects how people are actually working. 

3. All leave will be taken in hours 

Under the Employment Leave Act NZ, all leave will shift to an hours based model. Employees will be able to take part days of annual, sick, bereavement and family violence leave. This aligns leave with actual working patterns and removes the need to determine what constitutes a day for variable hours employees. 

This change will be particularly helpful for businesses with flexible or nonstandard working arrangements. It creates a more accurate link between the hours someone works and the hours they take as leave. Employees will also be able to cash up 25 percent of their annual leave balance each year, which may influence how leaders plan for resourcing and leave availability across the year. 

4. Clearer rules for casual and additional hours 

The leave law changes NZ include a clearer distinction between contracted hours and additional or casual hours. Casual employees and employees working additional hours will not accrue leave for those hours. Instead, they will receive a 12.5 percent leave compensation payment for each hour worked. 

This removes the ambiguity that often arises when employees work irregular patterns or pick up extra shifts. It also gives employers a predictable cost structure for additional hours, which will support more accurate budgeting and workforce planning. For employees, it provides transparency about what they are paid for each hour worked, regardless of how often they work. 

5. A new test for the Otherwise Working Day 

The Otherwise Working Day test will be simplified under the Employment Leave Act NZ. If an employee has worked 50 percent or more of a particular weekday in the relevant period, that day will be considered an OWD. This will help reduce disputes and improve payroll accuracy. 

This clearer test will be especially useful for businesses with variable rosters or changing work patterns. It removes the need for subjective interpretation and gives both employers and employees a straightforward way to determine public holiday entitlements. It also supports more consistent payroll outcomes, which has been a challenge under the current legislation. 

6. One hourly leave pay rate 

The Employment Leave Act NZ introduces a single hourly leave pay rate for all types of leave. This rate will be based on the lowest wage rate that would apply on the day of leave. Fixed allowances will continue to be paid during leave, while bonuses, commissions and variable allowances will be excluded. 

This shift removes the complexity of calculating different rates for different leave types. It also gives leaders and payroll teams a more predictable and transparent framework for planning leave costs. For employees, it provides clarity about how their leave will be paid, regardless of the type of leave they take. 

7. Removal of the parental leave override 

Annual leave taken after returning from parental leave will be paid at the same rate as any other leave. This removes one of the more complex and often misunderstood parts of the current system. It brings annual leave after parental leave into the same calculation method as all other leave, which will make planning and payroll administration more straightforward. 

This change will be welcomed by employees and will help employers avoid the confusion and remediation issues that have arisen under the current rules. It also supports a more consistent and equitable approach to leave, which is important for both workforce planning and employee experience. 

8. Mandatory pay statements 

Employers will need to provide clear, itemised pay statements each pay period. These statements must show enough detail for employees to understand how their leave and pay have been calculated. 

This requirement supports transparency and will help reduce disputes or misunderstandings about entitlements. It also encourages stronger payroll record keeping, which will be essential as businesses transition to the new hours based system. For leaders, it is an opportunity to lift transparency and reduce the friction that often comes with unclear pay or leave calculations, which helps build a more confident and informed workforce.

What this means for leaders preparing for the Employment Leave Act NZ 

The shift to an hours based system is intended to simplify compliance, but the transition will require careful planning. Leaders should expect to review and update: 

• Employment agreements 

• Payroll systems 

• Rostering and scheduling processes 

• Leave request workflows 

• Record keeping practices 

• Internal policies and employee communications 

The 24 month implementation period is generous, but it will move quickly. Businesses that start early will avoid the pressure that comes with last minute compliance. 

This is also an opportunity to strengthen internal capability. HR and payroll teams will need training on the new rules, and leaders will need clear visibility of how the changes affect cost, resourcing and workforce planning. 

How Human Focus Consulting supports organisations through the transition 

The shift to the new Employment Leave Act NZ touches every part of the employment lifecycle. Many businesses and HR teams will need support to interpret the changes, update their agreements and align their systems without disrupting day to day operations. 

At Human Focus Consulting, we work alongside leaders, HR and teams to make this transition steady and well planned. We help you understand what the changes mean for your business, update the documents and processes that need attention, and prepare your people for the new framework. 

If you’d like a partner to help you work through the changes and plan your next steps, we’re here to support you and your team.