One of the greatest challenges for employers has been employees’ leave rights, leaving many businesses facing remediation programmes, compliance reviews and uncertainty around leave calculations.
The Employment Leave Act 2026 (the new Act) was passed into law in August 2026. The new Act will replace the Holidays Act 2003 (the old Act) from 6 August 2028, and introduces a fundamentally different framework for earning, taking and paying leave. While the transition date may seem some way off, employers have a valuable opportunity now to assess systems, policies and processes before the new rules take effect.
Why Is the Holidays Act Being Replaced?
Over the last 20 years, the growth in irregular workers, such as working variable hours, shifts, seasonal patterns and casual arrangements, made the old Act difficult to implement. With more flexibility than ever, many employers struggled to correctly calculate employees leave entitlements.
In the past 10 years, organisations across New Zealand have had to undertake significant remediation programmes after identifying historic leave calculation errors. For many this has required them to review payroll records, recalculate entitlements and ultimately make back-payments to former employees.
The Government has recognised that these issues with compliance was due to the legislative complexity, rather than purposely not complying. Their goal with the new Act was to simplify the legislation, reduce ambiguity, support better compliance and ensure leave entitlements can be paid consistently.
What Are the Biggest Changes Under the Employment Leave Act?
The new Act introduces the most significant changes to New Zealand’s leave framework in 20 years. For employers, HR teams and payroll specialists, understanding these changes early will make it easier to assess what may need to change within their own organisation.
Leave will Accrue from Day One
Under the old Act, employees would typically become entitled to leave after they completed 12 months of continuous employment. Employees will now build up leave from their first day of employment, allowing leave to accumulate progressively instead of relying on anniversary dates and entitlement thresholds.
Leave Will Be Recorded in Hours Rather Than Days or Weeks
The new Act changes how leave will be recorded. Moving away from recording leave in days or weeks, leave will now be recorded in hours. For employers, this creates a more consistent framework between full-time, part-time and casual workers. It is likely to increase the importance of accurate timekeeping, payroll reporting and leave tracking systems. Businesses that currently rely on manual processes or older payroll systems may need to assess whether their existing tools will support the new framework effectively.
It is important to note that all pre-existing leave balances will be preserved and converted from weeks or days to hours.
Employees Can Take Leave more Flexibly
The new Act allows leave to be taken in hourly increments. This change reflects the new reality that many people do not require a full day away from work. This creates greater flexibility for employees who need time for appointments, family responsibilities or other commitments. For example, needing to take two hours for a doctor’s appointment in the middle of the day, or needing three hours to attend a school event at the end of the day. These events don’t require a full day of leave, instead just a few hours. It also allows employers to monitor leave more closely.
Leave Payment Calculations Are Being Simplified
One of the key goals of the new Act is simplifying how leave is calculated. The old Act was the source of many compliance issues, particularly for employees with variable earnings or hours. The new Act introduces a new approach, of a single hourly rate across all types of leave, intended to provide greater certainty and consistency for employers and employees.
New Rules for Different Types of Working Hours
The new Act provides clearer guidance on standard hours, additional hours and casual hours.
- Standard hours are the hours agreed to within the contract of employment; these hours are where annual and sick leave are accrued.
- Additional hours are the hours worked beyond the standard hours, such as overtime or additional shifts. Employees will not accrue annual or sick leave on these hours, but they will receive a leave compensation payment (LCP) of at least 12.5% of their ordinary hourly payment.
- Casual hours are those worked under an agreed casual arrangement. LCP will also apply to casual hours.
What Will This Mean for Employers and Payroll Teams?
Payroll systems May Need Updating
Although you do not need to make changes immediately, it is worth starting conversations with payroll providers. Employers should also expect software providers to update their systems before the legislation comes into effect in 2028. Understanding your current payroll processes now can help identify any areas that may require additional attention in the lead-up to 2028.
Reach out to your payroll provider and ask them:
- How will the system calculate leave accrued from day one?
- Can leave balances already be tracked in hours?
- How will additional hours and casual hours be recorded separately?
- What reporting changes are expected before August 2028?
Employment Agreements and Policies Should be Reviewed
The new framework is likely to affect how leave is described and managed within employment agreements and workplace policies. Once more detailed guidance becomes available, employers should consider whether existing documentation accurately reflects the new requirements.
Reviewing agreements, leave policies and internal procedures early can help ensure consistency across payroll, HR and management practices.
Clauses that may require review include:
- Ordinary working hours
- Overtime provisions
- Casual employment arrangements
- Leave recording processes
- Leave payment provisions
Clear Processes Will Be More Important Than Ever
Employers should consider how leave requests are approved, recorded and communicated, particularly where employees work variable hours or flexible schedules. Strong processes can help reduce errors, improve employee understanding and make future compliance reviews easier to manage.
Employers may also need to review:
- Timekeeping procedures
- Manager approval processes
- Leave request workflows
- Record keeping practices
- Categorisation of standard, additional and casual hours
- Monitoring of payroll data quality
Early Preparation Can Reduce Compliance Risk
Although the new legislation does not take effect until August 2028, businesses have an opportunity to use the transition period to assess their current arrangements. Identifying potential issues ahead of time can make implementation smoother and reduce the risk of last-minute changes.
For many employers, the goal is ensuring payroll systems, policies and processes continue to support employees while meeting what the law requires.
Speak to Moore Markhams
The new Act intends to simplify the way leave is earned, recorded and paid, but employers need to take this time to prepare themselves, their systems and their processes. With the new rules set to take effect from 6 August 2028, businesses have an opportunity to review payroll systems, workplace policies and leave management practices well before the transition date. Early preparation can help reduce compliance risks and make it easier to adapt when the new framework comes into force.
If you would like to understand how the Employment Leave Act could affect your business, the Moore Markhams team can help. We can review your payroll and compliance processes, identify potential risks and provide practical advice to support your transition to the new leave framework.
