After decades of complaints from employers, payroll providers, and workers alike, New Zealand's long-troubled Holidays Act 2003 has officially been replaced. The Employment Leave Bill passed its third and final reading in Parliament on 30 July 2026 and became law. It introduces the most significant overhaul of workplace leave entitlements in over two decades — changing how annual leave, sick leave, bereavement leave, and family violence leave are earned, taken, and paid.
Whether you're a worker wondering what this means for your pay packet, a job seeker weighing up a new role, or an employer trying to understand your obligations, this guide explains everything you need to know in plain English.
Important: The new law does not take effect until 2028 — two years after Royal assent. Until then, the existing Holidays Act remains fully in force. Employers must continue to follow current rules in the interim.
Why Was the Holidays Act Replaced?
The Holidays Act 2003 had been widely criticised as one of the most complex and error-prone pieces of employment legislation in New Zealand. It was described across four consecutive elections as the number one priority for the business community to fix.
The core problem was that the Act was designed around regular, salaried Monday-to-Friday employees — but New Zealand's workforce is far more varied. Casual workers, part-timers, shift workers, those with variable hours, and those returning from parental leave all found themselves in situations where the Act's calculations were ambiguous, contradictory, or simply impossible to implement correctly without specialist payroll expertise.
The consequences were severe. Errors in holiday pay calculations led to billions of dollars in underpayments across the public and private sectors. Health NZ alone paid out more than $544 million in remediation to over 72,000 current employees. Major banks, retailers, councils, and government departments all made significant backdated payments to staff who had been underpaid for years — often without knowing it.
Historical underpayments: Even with the new law passed, employers still have an obligation to remediate employees for historical underpayments that occurred under the Holidays Act. If you believe you were underpaid holiday pay in a previous role, you can contact Employment New Zealand for guidance.
Workplace Relations and Safety Minister Brooke van Velden described it as a "simpler, fairer, and more workable system," saying the Bill removed the need for "confusing conversions between hours, days, and weeks." The reform has been in development since 2018, when a joint union-employer taskforce began work on recommendations for change.
The Major Changes: What's Actually Different
1. Leave Accrues from Day One
Under the old Holidays Act, employees had to work for their employer for 12 months before they became entitled to four weeks of annual leave. This was one of the most criticised features of the legislation — a worker who was made redundant at 11 months received no annual leave entitlement at all, despite nearly a year of work.
Under the new Employment Leave Act, annual and sick leave begin accruing from the very first day of employment. All employees — including casual workers — can access annual, sick, bereavement, and family violence leave from day one. This is a significant improvement for workers in their first year of a new role.
2. An Hours-Based Accrual System
The most fundamental shift in the new legislation is the move from an entitlement-based system to an hours-based accrual system. Rather than receiving an annual block of four weeks' leave, employees will now accrue leave continuously in hours, in direct proportion to the hours they work.
For full-time employees working standard hours, this change is largely neutral — you still end up with four weeks of annual leave and 10 days of sick leave per year. The major beneficiaries are workers with variable, irregular, or part-time hours, who will now receive leave that is directly proportional to the work they actually do.
3. Taking and Paying Leave — Simpler Rules
Under the new system, taking leave becomes more straightforward. An employee will use one hour of accrued leave for every hour they take off work. This also means partial days off are now possible — you can take two hours of sick leave for a doctor's appointment without burning through an entire day's entitlement. This was not possible under the Holidays Act.
For how leave is paid, the new law uses a single hourly leave pay rate across all types of leave, based on the employee's lowest hourly rate for the day leave is taken. This replaces the complex multiple formulas the old Act required — including the "greater of ordinary weekly pay or average weekly earnings" calculation that caused so many payroll errors.
4. Cashing Out Annual Leave
Workers will be able to cash in up to 25 percent of their total annual leave balance every year. This gives employees more flexibility to convert unused leave into cash if they prefer — useful for those who don't take extended holidays but accumulate leave over time.
Understanding the New Hour Types
The new framework introduces a key distinction between three types of working hours that determines how leave is treated:
What This Means for Casual and Part-Time Workers
The treatment of casual workers is one of the most significant and contested changes in the legislation.
Casual workers will receive a leave compensation payment of at least 12.5% on their casual hours — paid upfront as part of their regular pay — in lieu of accruing traditional annual and sick leave. The same 12.5% rate applies to additional hours for all workers.
Bereavement leave and family violence leave will, however, remain available to all workers regardless of their employment type — including casuals.
All three opposition parties — Labour, the Greens, and Te Pāti Māori — voted against the legislation. Labour argued the changes would disadvantage those who could least afford it, saying part-time and casual workers would face a harder choice between going to work sick or losing pay, and that workers who put in extra hours would not see that reflected in their leave entitlements under the new model. These are important considerations for workers in casual or variable-hours roles to be aware of.
When Do These Changes Apply to You?
Right Now (July 2026)
The Employment Leave Bill has passed and become law. However, the existing Holidays Act 2003 remains fully in force. Your current leave entitlements are unchanged.
2026–2028: Transition Period
Employers and payroll providers have two years to update their systems, processes, and employment agreements. MBIE will publish guidance on Employment New Zealand during this period. Employers may want to start planning now.
2028: New Law Takes Effect
The Employment Leave Act comes into force — two years after Royal assent. From this date, all new leave entitlements are calculated under the new hours-based system.
What This Means If You're a Worker
For most employees in standard full-time roles, the overall quantum of leave you receive annually stays broadly the same — four weeks of annual leave and 10 days of sick leave. The main differences you'll notice:
Improvements for Workers
- Leave starts accruing from day one — no 12-month wait
- You can take partial days of leave (a few hours rather than a full day)
- You can cash out up to 25% of your annual leave balance each year
- Simpler calculations mean pay errors should become less common
- Bereavement and family violence leave available from day one for everyone
Watch Points for Workers
- Casual workers receive 12.5% upfront compensation rather than accrued leave
- Extra hours worked don't accrue leave in the traditional sense — they receive the 12.5% payment instead
- Opposition parties argue some part-time workers could be worse off
- Changes don't take effect until 2028 — follow the current Holidays Act until then
If You're Looking for a New Job Right Now
If you're actively job hunting in 2026, the Holidays Act still governs your leave entitlements at any new role you take. That means the standard provisions apply: annual leave after 12 months of employment, 10 days of sick leave after six months, and so on.
However, it's worth being aware of how the new law will eventually affect roles you accept now. Any employment you start today will transition to the new Employment Leave Act framework in 2028. This means leave that hasn't yet been taken will be recalculated under the new system at that point.
Negotiating leave in a new role: You can negotiate leave entitlements above the legal minimum in any employment agreement — and many employers offer more than the statutory minimum to attract talent. If leave is important to you, now is a good time to raise it in salary negotiations. Under the new law, any additional leave beyond the minimum will also be calculated under the hours-based system from 2028.
What Employers Need to Do to Prepare
While 2028 feels some time away, the reality is that updating payroll systems, employment agreements, and HR processes for 400,000+ New Zealand businesses is a significant undertaking. The two-year transition period exists precisely because the government recognises this.
As an employer, here's what to start thinking about:
- Review your payroll system. Talk to your payroll provider now. Most major providers (MYOB, Xero, iPayroll, Smartly) will release updated functionality before 2028 — but implementation takes time.
- Review employment agreements. Some clauses in existing employment agreements may need to be updated to align with the new framework, particularly around how leave is calculated and described.
- Plan for casual and additional hours workers. If you employ casual staff, the 12.5% upfront payment model requires changes to how you structure payslips and communicate leave to those employees.
- Train your HR and payroll teams. The new system is simpler than the old one — but it's different, and your team will need to understand the change.
- Continue to remediate historical errors. Passing the new law does not remove obligations to address underpayments under the Holidays Act. If you haven't already addressed potential historical non-compliance, take legal advice.
MBIE guidance is coming. The Ministry of Business, Innovation and Employment will update the Employment New Zealand website with detailed guidance to help businesses transition. Check employment.govt.nz regularly as implementation guidance is published.
