Employment Leave Act 2026: What New Zealand Employers Need to Know

New Zealand’s employment leave system is changing.

The Employment Leave Act 2026 has been passed and will replace the current Holidays Act 2003 on 6 August 2028. The new legislation introduces a different approach to how leave is earned, taken and paid, with a greater focus on hours worked.

For employers, payroll teams and businesses with employees working different hours or patterns, these changes will mean adjustments to payroll systems, employment agreements and leave processes.

The good news is that employers have time to prepare. The new rules will not apply until 2028.

Important: The current Holidays Act remains in force until the new rules take effect. Employers cannot start using the new system early and must continue processing leave under the current legislation until 6 August 2028.

What is changing?

The Employment Leave Act introduces changes to the way annual leave, sick leave, bereavement leave, family violence leave, public holidays and alternative leave are managed.

Some of the key changes include:

• Annual leave will accrue from an employee’s first day of employment.

• Annual leave will accrue in hours, at a minimum rate of 0.0769 hours for each standard hour worked.

• Sick leave will also accrue from day one, at a minimum rate of 0.0385 hours for each standard hour worked.

• Sick leave will have a maximum accrual of 160 hours, unless a greater entitlement is agreed.

• Annual and sick leave will be recorded and taken using an hourly approach.

• Employees will be able to request to cash up up to 25% of their annual leave balance in each 12-month period, subject to the new rules.

• Bereavement leave and family violence leave will be available from day one.

• A new 12.5% Leave Compensation Payment (LCP) will apply to relevant additional and casual hours.

• Alternative holidays will move to an hours-based system.

• Public holiday entitlements will use a new Otherwise Working Day test.

• A new hourly approach will be used to calculate leave payments.

  
  

These changes are designed to provide a clearer and more consistent approach to leave entitlements, payments and record-keeping.

Annual leave will accrue from day one

Under the current Holidays Act, employees become entitled to four weeks of annual holidays after completing 12 months of continuous employment.

Under the new system, annual leave will start accruing from the first day of employment.

Employees will accrue 0.0769 hours of annual leave for each standard hour worked. For employees working a standard full-time pattern, this is designed to provide the equivalent of four weeks of annual leave each year.

The overall minimum annual leave entitlement remains equivalent to four weeks per year for a full-time working pattern. The main change is how the entitlement is earned, recorded and used.

Instead of managing annual leave primarily in days or weeks, employers will need to maintain leave balances in hours.

This will be particularly important for businesses with employees who work different hours or whose working patterns change over time.

Annual leave can be cashed up differently

The new system will also change how employees can cash up annual leave.

Under the current Holidays Act, employees can request to cash up up to one week of their annual holiday entitlement each year.

Under the Employment Leave Act, employees will be able to request to cash up to 25% of their annual leave balance during each 12-month period, subject to the new requirements. Employers can decline a request.

This provides a different approach to cashing up annual leave and gives employees greater flexibility around how they use their leave entitlement.

Sick leave will also accrue from day one

Sick leave will move to an hours-based accrual system.

Under the current Holidays Act, eligible employees generally become entitled to sick leave after six months of continuous employment.

Under the new system, sick leave will start accruing from the first day of employment.

Employees will accrue 0.0385 hours of sick leave for each standard hour worked.

For employees working a standard full-time pattern, this is designed to provide an entitlement equivalent to 10 days of sick leave each year.

Sick leave will be taken in hours

Sick leave will be managed using hours rather than a fixed number of days.

This means employees will be able to use sick leave for the hours they are absent from work, including part of a working day where the new rules allow.

For employers, this will make accurate recording of standard working hours and leave balances particularly important.

Bereavement and family violence leave will be available from day one

The Employment Leave Act will also change when employees become eligible for bereavement and family violence leave.

Under the new system, bereavement leave and family violence leave will be available from the start of employment, subject to the eligibility requirements in the Act.

The minimum entitlements remain:

• Bereavement leave: three days for certain close family members, with one day available for other qualifying bereavements.

• Family violence leave: up to 10 days in each 12-month period.

  
  

Both types of leave can also be taken in whole or part days under the new system.

This means employers will need to ensure their payroll systems and leave policies can correctly record these entitlements from the beginning of employment.

A new 12.5% Leave Compensation Payment

One of the more significant changes is the introduction of the Leave Compensation Payment (LCP).

The LCP will apply to relevant additional and casual hours, instead of annual and sick leave accruing on those hours.

The minimum LCP is 12.5% of the employee’s ordinary hourly rate for each relevant hour and is paid in each pay period.

For example, if an employee’s ordinary hourly rate is $25 and they work 30 relevant casual or additional hours (over above their contracted hours), the minimum LCP would be:

30 hours × $25 × 12.5% = $93.75

The $93.75 LCP would be paid in addition to the employee’s other pay for those hours.

This is different from the current 8% pay-as-you-go holiday pay arrangements that can apply to certain employees who work so irregularly or intermittently that providing four weeks of annual holidays is impracticable.

Under the new system, businesses will need to correctly identify whether hours are standard, additional or casual, as this classification will affect how leave is accrued and when the LCP applies.

Payroll systems will also need to calculate and show the LCP correctly in each pay cycle.

Public holidays and alternative holidays are changing

The way public holiday entitlements are determined will also change.

The new system will use an Otherwise Working Day test to determine whether an employee is entitled to a public holiday.

This will be particularly important for employees who have variable or changing work patterns.

Employees who work on a public holiday will still receive at least time-and-a-half for the hours worked.

Alternative holidays will move to hours

Alternative holidays will also move to an hours-based approach.

Under the new system, an employee who works on a public holiday will accrue alternative leave based on the hours worked on that public holiday.

This means an employee who works only part of a public holiday will receive a corresponding amount of alternative leave rather than automatically receiving a full day.

For example, an employee who works four hours on a public holiday would accrue four hours of alternative leave under the new hours-based approach, subject to the Act’s rules.

Businesses will need to make sure their payroll and time-recording systems can correctly record public holiday work and calculate the resulting entitlements.

How Sass Can Help

Changes to employment legislation can be difficult to navigate, particularly when they affect payroll, leave calculations, employment agreements and employee records.

At Sass, we can help you understand what the upcoming changes could mean for your business and help you prepare your payroll and records for the transition.

If you have questions about payroll, leave or the upcoming Employment Leave Act changes, contact the Sass team on 03 577 7128.

We’ll help you stay informed, prepared and ready for the changes ahead.