The government has introduced the Employment Leave Bill to parliament. The bill will replace the Holidays Act 2003 and aims to simplify the accrual, use, and payment of employee leave, especially sick and annual leave.
Successive governments have proposed reforms to the Holidays Act that has long caused issues for employers, payroll providers, and workers. Targeted public consultation in September 2024 on a draft of proposed reforms to the act found that the changes were not a significant improvement and that new legislation was needed.
Introducing the bill to parliament, Workplace Relations and Safety Minister, Brooke van Velden, said the new legislation "will bring simplicity and logic to the way employment leave is calculated, which benefits businesses by saving them time and money when calculating their payroll obligations, and prevents headaches for both employers and employees from getting payments wrong.”
The Employment Leave Bill passed its first reading in parliament, and has been referred to the Education and Workforce Committee for review. Public submissions on the proposed changes are open until 14 April 2026.
Once the legislation becomes law, there will be a 24-month implementation period to give employers time to make changes to business and payroll systems.
Focus of the leave and payment reforms
This main focus of the new legislation is to simplify leave accrual and payment calculations, and reduce the amount of admin employers have to do to comply with the law. Key proposed changes include:
Annual leave and sick leave entitlements
- Annual and sick leave will accrue continuously in hours, rather than being provided as lump sum entitlements, e.g. 4 weeks’ annual leave for full-time employees.
- Leave will be taken in hours and employees will be able to use their leave hours to take any part of a day off.
- Employees will earn leave in direct proportion to their standard hours:
- Annual leave will be calculated at a rate of 0.0769 per standard hour of work (the equivalent of 4 weeks’ leave for workers whose standard hours do not change during a year).
- Sick leave will be calculated at a rate of 0.0385 per standard hour of work (the equivalent of 10 days a year for a worker who works 5 days a week and the same hours every day).
- Sick leave accrual will be capped at 160 hours.
- Employees will accrue annual and sick leave from the first day of employment. Leave will accrue when they are on any form of paid leave, unpaid leave, or an unpaid absence (e.g. jury and volunteers leave), other than periods when a worker receives accident compensation or takes unpaid leave not provided by legislation.
- Employees can request to cash up 25% of their annual leave every 12 months (rather than one week every 12 months).
Standard hours
Standard hours are the hours an employee is required to work under their employment agreement. Employees will be able to take annual leave during standard hours, which can be identified through either:
- The employment agreement.
- A work roster (where the employee requests leave after the employer sets a roster for the period in which the requested annual leave falls).
- A notional roster (where the employee requests leave before the employer sets a roster in which the requested annual leave falls).
Payment of leave
- The same hourly leave pay rate will be used for all types of leave, based on a worker’s base wage for the day of leave.
- Fixed allowances (e.g. an accommodation allowance) will be paid in full during leave, but other components of pay (e.g. bonuses, commissions) will not be included in the hourly leave pay rate.
- When annual leave is taken after parental leave it will be paid like any other annual leave (not at a reduced rate as it can be currently).
Leave compensation
- For hours worked by casual employees and overtime hours for other employees (except where those hours are compensated by salary), there will be a 12.5% upfront leave compensation payment in lieu of annual and sick leave accrual. Currently, employees receive an 8% “pay-as-you-go” payment.
Public holidays
- Entitlements will be based on a new clearer test for determining whether an employee would have otherwise worked on a public holiday, based on whether they have worked 50% or more of the same day as the public holiday in the preceding 13 weeks.
- Employees 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-a-half for the hours they actually work and leave pay for the unworked hours.
Alternative holidays
- Alternative holidays will also shift to hours-based accrual.
Bereavement and family violence leave
- All employees will be able to access bereavement and family violence leave from their first day of employment. They will remain days-based entitlements, but workers will be able to take part days of leave on the same days as sick leave.
Mandatory pay statements
- Employers will be required to provide clear pay statements to employees each pay period, itemising pay and leave in a way that’s transparent and easy to understand.
- Statements can be in physical or digital form or via an online platform.
See the full details of proposed changes under the new legislation (MBIE website).
Next steps
The government aims to pass the Employment Leave Bill by the end of this parliamentary term (November 2026).
The legislation is currently being considered by the select committee and public feedback is open until 11.59pm on Tuesday, 14 April 2026.
After the legislation becomes law, there will be a 24-month implementation period to give employers time to update their systems, policies, and employment agreements.
To find out more about the progress of the bill, visit the NZ parliament website.
And as always, if you have any questions about how the Employment Leave Bill might impact your business or need assistance getting employee leave and payroll right, contact MyHR.