Employment Leave Act 2026: what employers need to know

The Employment Leave Act 2026 (The Act) received Royal Assent on 6 August 2026, marking New Zealand’s biggest overhaul of leave law in more than two decades. It replaces the Holidays Act 2003 and aims to fix long-running problems with payroll compliance and leave calculations. 

The changes go well beyond payroll. They introduce new working-hours categories, new accrual methods, stronger information requirements, and a renewed focus on why annual leave exists in the first place. The Act won’t take effect until 6 August 2028, but business owners should view that transition period as an opportunity, not a delay to ignore. 

A shift in purpose 

During the Bill’s passage through Parliament, “rest and recreation” was restored as a core purpose of annual leave – a reference that had been dropped from the original Bill, then reinstated after public submissions. 

The change is more than symbolic. It reaffirms that annual leave exists to support employee wellbeing and sustained participation in the workforce, not just as a financial entitlement. For employers, it’s a reminder that leave management is as much about productivity and retention as it is about compliance. 

When the new law takes effect 

The current Holidays Act stays in force until 6 August 2028. From that date, the new regime applies from the start of an employee’s first pay period. Employers can’t adopt it early. 

Employment agreements get an extra year after commencement to be updated. Some parental leave provisions come into effect sooner, from 1 July 2027. 

Three categories of working hours 

The new framework rests on three categories of work: 

• Standard hours: hours an employee is contractually required to work. 

• Additional hours: hours worked beyond standard hours. 

• Casual hours: hours worked without an ongoing commitment or guaranteed pattern. 

These categories determine how leave is earned, paid, and administered. Correctly classifying working arrangements will be one of the most important compliance tasks during the transition. 

Annual leave: accruing from day one 

Annual leave will accrue from an employee’s first day, rather than arriving as a block after 12 months. It builds at a minimum rate of 0.0769 hours for every standard hour worked, and employees can take it in hourly increments rather than only whole days. 

Accrued leave is effectively banked. If an employee later reduces their hours, leave already accrued doesn’t change. If they increase their hours, past accruals don’t retrospectively increase either. This is a more precise, predictable model than the current one. 

Employees will also be able to request cashing up of up to 25 per cent of their annual leave balance each year, up from the current one-week limit. Employers can decline but must respond in writing within set timeframes. 

Sick leave and other protected leave 

Sick leave is changing significantly. Instead of a fixed entitlement after six months’ continuous employment, it will accrue from day one at 0.0385 hours per standard hour worked, capped at 160 hours unless a contract provides more. 

Bereavement leave and family violence leave will also be available from day one, removing qualifying periods and creating more consistency across statutory leave types. 

The Government has framed this as fairer and more proportionate, but some part-time employees may accrue less sick leave than they currently get. It’s a trade-off worth understanding, not just a simplification. 

The 12.5 per cent compensation payment 

For additional and casual hours, employees will receive a 12.5 per cent leave compensation payment through payroll, instead of accruing annual or sick leave on those hours. 

This should reduce the complexity of tracking leave liabilities from overtime and variable schedules, and simplify final pay calculations – this is an area that’s caused historical underpayment issues under the Holidays Act. 

A payslip for leave 

Employers will need to give employees detailed, pay-period-by-pay-period visibility of their leave position – effectively a leave statement, similar in concept to a payslip. This means payroll systems will need to track and report leave accruals accurately under the new hours-based model. 

Public holidays: a clearer test 

The Act also reforms the “otherwise working day” (OWD) test used to determine whether a public holiday falls on a day an employee would normally work. For employees without fully prescribed schedules, a day may qualify as an OWD if the employee worked, or was on leave, for at least 50 per cent of the corresponding weekday over the previous 13 weeks. This should reduce disputes for shift workers, rostered staff, and variable-hours employees. 

Alternative holidays (sometimes referred to as “days in lieu”) are also moving to hours-based accrual, aligning them with the rest of the framework. 

What businesses should be doing now 

This isn’t a like-for-like replacement for the Holidays Act – it’s a redesign of how leave is earned, administered, and communicated. Organisations that start reviewing employment agreements, payroll systems, and workforce practices now will be best placed to manage the transition smoothly before the 2028 deadline. 

Need Help? 

Citation HR is here to make managing workplace obligations stress-free. Our HR Software is a complete management system designed to help you stay compliant and organised, with detailed contracts and templates.  

Ensuring you have compliant contracts, policies, management practices and payroll system will go a long way in meeting your obligations as an employer. If you need help understanding these future obligations, or if you have another workplace matter you need assistance with, please contact our employment relations experts via our Advice Line.  

Not a client yet? Talk to us today. We’re happy to assess where your business stands now and explain how we can help you navigate employment changes.