Parliament has passed the Employment Leave Act, repealing the Holidays Act 2003 and replacing New Zealand’s leave framework with an hours-based system. This is the most significant change to employment entitlements in two decades, and every employer in the country is affected.
The important immediate point: nothing changes yet. A two-year implementation period applies, with the new system taking effect in 2028. Until then, the Holidays Act 2003 rules continue to apply in full.
Why the Holidays Act was replaced
The Holidays Act 2003 calculated entitlements in weeks and days, which worked reasonably for employees on fixed, regular hours and poorly for everyone else. Variable hours, shift work, casual arrangements and changing work patterns all produced calculations that were genuinely difficult to get right.
The consequence was widespread, mostly unintentional non-compliance, remediation programmes running for years across both private and public sector employers, and payroll systems that could not reliably produce a correct answer. The reform addresses the design rather than the enforcement.
The core change: hours, not weeks
Leave will accrue in hours, at a fixed rate per hour worked, from the employee’s first day of employment.
Annual leave accrues at a minimum of 0.0769 hours per standard hour worked. For a full-time employee that produces the equivalent of four weeks a year.
Sick leave accrues at a minimum of 0.0385 hours per standard hour worked, capped at 160 hours. For a full-time employee that equates to the current 10 days a year, with the cap equivalent to the existing 20-day maximum accumulation.
Two consequences follow that matter in practice:
- The six-month wait for sick leave disappears. Under the Holidays Act, sick leave entitlement arises after six months of continuous employment. Under the new Act it accrues from day one.
- Balances are held in hours and are not adjusted when standard hours change. An employee who moves from full-time to part-time keeps the hours they accrued rather than having a weeks-based entitlement recalculated — which removes one of the most persistent sources of error under the old regime.
What annual leave accrues during
Annual leave continues to accrue during periods of paid statutory leave, parental leave, volunteer leave and jury service.
It does not accrue during unpaid leave, or during periods where the employee is receiving compensation under the Accident Compensation Act 2001.
Casual and additional hours
Rather than accruing leave on casual and additional hours, the new framework provides a 12.5 percent upfront leave compensation payment in lieu of annual and sick leave accrual for those hours.
This is a meaningful simplification for employers managing casual workforces, where the existing pay-as-you-go arrangements have been a recurring source of error.
What employers should do now
Two years sounds generous. It is not, for anyone with a payroll system that needs rebuilding or a workforce with complex arrangements.
- Talk to your payroll provider about their implementation timeline. Cloud providers will handle much of this; businesses on older or in-house systems face a real project.
- Continue complying with the Holidays Act. It remains the law until the new system commences, and existing remediation obligations do not disappear.
- Understand your current position. Employers with known Holidays Act calculation issues should resolve them rather than assuming the new Act writes them off.
- Model the cost. Sick leave accruing from day one changes the position for businesses with high turnover or heavy seasonal hiring, where employees previously left before the six-month threshold.
- Review employment agreements that reference the Holidays Act by name or reproduce its mechanics.
- Plan the transition of balances from the weeks-based system to hours. This is the part most likely to produce disputes, and it deserves attention before 2028 rather than during it.
What has not changed
Public holidays, bereavement leave, family violence leave and parental leave sit within their own arrangements and should be confirmed separately rather than assumed to be unaffected.
The obligation to keep accurate records of hours worked and leave taken continues, and it becomes more important under an hours-based system rather than less.
Where to follow it
MBIE has published an explainer on what is changing, and Employment New Zealand maintains guidance at employment.govt.nz. The Act itself is available at legislation.govt.nz, and there is no copyright in the official text of New Zealand legislation, so it can be quoted and relied on directly.
Given the scale of the change and the two-year window, this is an area to follow through official sources rather than commentary — guidance and regulations will develop through the implementation period.
General information only, not legal advice. Confirm your obligations with Employment New Zealand.
