Employment Leave Act: a new era for leave entitlements in New Zealand

By Lauren Foster and Shirley Walls

In September 2025 a press release came from Hon Brooke Van Velden, Minister of Workplace Relations and Safety, that Cabinet had agreed to a policy proposal to repeal the controversial Holidays Act 2003 and to replace it with new legislation, the ‘Employment Leave Act’. 

Draft legislation is yet to be released, but the Employment Leave Act will represent a significant reform of the Holidays Act 2003 and will impact all businesses operating in New Zealand that employ staff. Education and preparation will be critical for businesses navigating the transition.

This reform introduces significant changes to how leave is accrued, calculated, and paid, shifting from a complex 'weeks and days' model, to an hours based system that is intended to provide more flexibility.  

Employers who invest early in understanding the proposed legislation, updating payroll systems, and revising employment agreements will be better positioned to ensure compliance, avoid costly errors, and maintain employee trust.

With a 24-month implementation window, proactive planning and clear communication with staff will be key to making the transition smooth, sustainable, and beneficial for both employers and employees.

Why the change is needed

Documents from the Ministry of Business, Innovation and Employment (MBIE) provide a glimpse of some of the challenges with the Holidays Act 2003: "Employers struggle to understand and apply the Holidays Act 2003 correctly, leading to workers not getting their correct entitlements.  Administrative burden and compliance costs are high for employers, and despite good intentions, non-compliance is widespread and ongoing across both the public and private sectors.  In the current legislation, many provisions are unclear, complex, difficult to apply for diverse working arrangements, and hard to systematise in payroll systems.

Fixing the system will reduce errors, save time, and lower costs for businesses.  These changes will simplify how leave is earned, taken, and paid – so that employers know what they need to do, and workers know what they should be getting”

Implementation timeline

With legislative principles for the new laws announced, we’re now in the position of waiting to see how these will be translated into legislation. Draft legislation is expected to be introduced to Parliament early 2026 as the Employment Leave Bill.

Once introduced, it will go through the Select Committee stage, where the public and stakeholders will have the opportunity to provide feedback and submissions.

It’s important to note that none of the changes are final yet. Employers must continue to comply with the current Holidays Act 2003 until the new legislation is enacted and comes into force.

The proposed law includes a 24-month transition period once passed. During this transition period, employers will need to update employment agreements and payroll systems, train HR and payroll staff on the new entitlements, and engage with MBIE guidance and resources as they become available.

Key features of the Employment Leave Act

1. Annual Leave based on hours worked

Workers earn annual leave, from day one, in direct proportion to contracted hours of work.  Annual leave accrues at a rate of 0.0769 hours (4/52) per ‘contracted’ hour (providing the equivalent of four weeks’ leave for workers whose contracted hours do not change).

2. Sick leave based on hours worked

Workers earn sick leave, from day one, in direct proportion to contracted hours of work.  Sick leave accrues at a rate of 0.0385 hours (2/52) of sick leave per ‘contracted’ hour (providing the equivalent of 10-days per year for a worker who works five days a week and the same hours every day).  There will be a cap of 160-hours.  Once hit, the cap will stop new accrual until the worker has used some of their stored entitlement.

3. Provision of leave entitlements during unworked periods

Annual leave and sick leave accrue when a worker is on paid leave under any legislation and when on parental, jury and volunteers leave.  It does not accrue when a worker is receiving accident compensation and not working or on any unpaid leave.

4. Using annual leave

Workers can use accrued leave hours to take any part of a day off work. Annual leave is taken in hours against contracted hours.  Leave can be taken on days a worker would have worked their contractual hours under their employment agreement, or a roster created when leave is requested. If a worker doesn’t have days of work in their employment agreement, they must agree to a ‘notional roster’ for leave purposes that would be used if a roster had not been created when leave is requested.

A worker can request to ‘cash up’ 25% of their annual leave, as at their last 12-month employment anniversary, in each 12-month period.

5. Using sick leave

For every hour a worker takes off work, they will use an hour of accrued leave. Workers can use accrued sick leave hours to take any part of a day off work.

Sick leave can be taken on days, and against any hours, a worker would have worked under their employment agreement or that they had accepted at the time of the leave request.

Where sick leave is notified in advance, a notional roster will be used where an employment agreement does not specify days/hours (as per annual leave).

6. Notional rosters

Where the employment agreement includes a contractual obligation to work but doesn’t specify all of the information needed to determine someone’s leave entitlements (such as days of the week and times contracted, hours worked or the number of hours of work for a salaried employee) the employment agreement must then include a ‘notional leave roster’ that includes those details.  It will be necessary to review the Notional Leave Roster regularly to ensure it reflects an employee’s actual work pattern.

7. Salaried employee – working extra hours

If an employment agreement states that the salary includes payment for some additional hours, the employee will not accrue leave or receive any leave compensation for those hours.

However, if a salaried employee is paid extra wages for those additional hours, a leave compensation payment must be made at 12.5% of the employee’s ordinary hourly salary rate.

8. Waged employee – working extra hours

Any extra hours worked by a waged worker, on top of contracted hours, will not accrue annual or sick leave, but a leave compensation payment will be paid at the time the hours are worked. The rate will be 12.5% of a worker’s ordinary hourly wage rate.

9. Casual employees

All workers with no contracted hours will receive a leave compensation payment instead of accruing annual and sick leave for every hour they work.

The leave compensation payment is in lieu of accruing both annual leave and sick leave and is to be paid in every pay period.  The rate will be set at 12.5% of a  worker’s ordinary hourly wage rate, and is based on the value of both annual and sick leave entitlements (7.69% for annual leave and 3.85% for sick leave, with a small addition to recognise other factors (e.g. the insecurity of additional and casual hours of work).

The leave compensation payment will be a separate component of pay and must be shown separately in employee’s records and pay statements.

10. Payment of leave

The same hourly leave pay rate will be used for all types of leave. It will be based on a worker’s lowest wage rate that would apply for the day of leave (for example, if an employee takes a contractual night shift as leave and would have received time and a half for the whole shift, the hourly leave pay rate will be the time and a half rate).

For those on piece rates (where an employer is paid for the number of pieces produced, e.g. for the number of buckets of apples picked) the hourly leave pay rate will also include an hourly average of piecework wages calculated over pay periods starting in the previous 52 weeks.

In addition to the hourly leave pay rate, fixed allowances (such as an accommodation allowance) will be paid in full during leave, as they are under the current legislation. 

Other components of pay, like bonuses, commissions and variable allowances (such as for ad hoc special duties) will not be included in the hourly leave pay rate.

11. Parental leave

Workers will continue to earn (accrue) leave while they are on parental leave. Once they return to work, when annual leave is taken, it will be paid like leave taken at any other time would be.  This will be an increase in minimum entitlement compared with the status quo.

12. Bereavement and family violence leave

All employees will be able to access bereavement and family violence leave from day one. These will remain days-based entitlements, but workers will be able to take part days of leave.

13. Public holidays not worked (entitlement when OWD determined)

A day is an Otherwise Working Day (OWD) if an employee would have worked on it under their employment agreement (including based on an agreed pattern of days of work).

Where an employment agreement is not clear on whether a day is an OWD, this will be determined by whether the employee worked that day of the week in seven of the preceding 13 weeks.  A day will not, however, be considered an OWD, if it is reasonable to expect the employee would not have worked on it due to parental leave, volunteers’ leave, accident compensation or unpaid leave.

14. Public holidays worked

Workers will accrue alternative holiday hours at a rate of one hour for every hour worked on a public holiday that is an otherwise working day.

Workers who work only some of their contracted hours on a public holiday will receive time and half for the hours they actually work and leave (Public Holiday not worked) pay for the unworked hours.

15. Pay statements

Employers will be required to provide clear pay statements each pay period itemising pay and leave in a way that’s transparent and easy to understand.

Pay statements will need to include a subset of information from workers’ records – sufficient for workers to determine whether their pay and leave have been calculated correctly.  There will be flexibility around how an employer provides the pay statement – it could be provided directly in a physical or digital form or made accessible to workers via an online portal.

How Deloitte can help

Navigating legislative change can be challenging  but Deloitte is here to support you. Our team of payroll and Holidays Act specialists can help you understand the new proposals and prepare your business for a smooth transition. We offer:

• Holidays Act playbook and leave conversion tools to help you understand the proposed legislation and what is changing from their current set up.
• Change management support to communicate to employees about what is changing and how this will impact their pay.
• Employment agreement and policy reviews – helping review current policies and agreements to suggest potential changes to come into alignment with the new legislation.
• AI tools for compliance and reporting – tools to help identify any areas of potential non-compliance.
• Holidays Act / Leave Act lab – interactive lab to help Payroll teams to prepare for the new legislation.