After years of criticism and confusion over leave entitlements under the Holidays Act 2003, the Employment Leave Act will introduce a simpler approach to calculating and administering employment leave when it takes effect on 6 August 2028. 

Why was change needed? 

The Holidays Act is widely considered one of New Zealand’s most complex employment laws. The new system shifts leave calculations from ‘weeks’ and ‘days’ to ‘hours’, better reflecting modern working patterns that extend beyond fixed Monday-to-Friday schedules. Common problem areas have included:  

• Calculating leave for employees with variable hours  

• Determining the correct rate for holiday pay  

• Managing overtime, commissions and allowances  

• Applying leave rules consistently across part-time and casual staff  

• Payroll systems that did not correctly apply Holiday Act requirements  

The result was widespread uncertainty and, in many sectors, has resulted in employers having to pay arrears for incorrectly paid leave.    

Key changes 

Leave accrual in hours    

Under the current system, leave has been measured in days and weeks, which is not always compatible with the modern workforce. Annual and sick leave will now be measured in hours.     

This approach is already used by many payroll systems for shorter periods of leave, allowing employees to access leave on an hourly basis when taking a partial day off or leaving work early due to illness.    

Parental leave   

Currently employees returning from parental leave can be significantly disadvantaged when taking annual leave within the first 12 months of their return. The current method applies an annual leave rate based on the average of the last year; the new method will pay the same rate as other annual leave.   

Leave availability   

A key change is that employees will be entitled to take leave as it is accrued from the start of employment. Under the current system, annual leave becomes available after 12 months and sick leave after six months. Bereavement and family violence leave is also available from the start of employment.  

12.5% Leave Compensation Payment  

The current law requires casual employees are paid their holiday pay by adding 8% of their wages to their regular pay. Sick leave is more complex, for casual employees to be entitled to sick leave, they need to have worked for six months, with an average of 10 hours per week and at least one hour per week or 40 hours per month.   

For employees working additional hours or casually, annual leave and sick leave will no longer accrue in the same way. Instead, employers must pay a 12.5% Leave Compensation Payment for those hours worked.   

Public Holidays   

The new system also changes some public holiday rules, particularly for people who work irregular rosters. This includes a clearer test for deciding whether a public holiday falls on a day the employee would otherwise have worked. Alternative holidays, often called days in lieu, will also move towards an hour-based approach.   

What should employers do now?  

Although most changes will not take effect for 24 months, employers should use the transition period actively. Useful steps include:  

• Getting a new standard employment agreement drafted for any new staff  

• Consulting with existing staff and updating employment agreements  

• Identifying standard hours and making sure current arrangements are accurately categorised  

• Ensuring your payroll is ready to comply with the new system