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ALERT / AUGUST 17, 2026
New Zealand passes legislation to replace the Holidays Act 2003
6 MIN READ
New Zealand recently passed legislation to simplify its existing statutory leave rules by replacing the existing Holidays Act 2003, which is primarily measured in weeks and days, with an hours-based system. Key changes include the introduction of three types of working hours (standard, additional, and casual hours), day one rights for annual leave, sick leave, bereavement leave, and family violence leave, and hours-based annual and sick leave accrual. The new legislation is scheduled to replace the Holidays Act 2003 on 6 August 2028.
Background
The Employment Leave Act (the “Act”) received Royal Assent on 6 August 2026. The new leave regime will apply from employees’ first pay periods on or after 6 August 2028. The 24-month implementation period provides employers with time to review and update their policies, practices, and payroll systems.
The existing Holidays Act 2003 has been widely regarded as complex, ambiguous, and difficult to implement, particularly for employees with variable schedules and for payroll systems managing multiple calculation methods. The Act is intended to resolve these issues by creating a standardized hours‑based system that delivers clarity, consistency, and improved compliance outcomes.
Key details
Key details for employers to note include the following:
Working hours (standard, additional, and casual hours)
The Act defines three types of working hours for the purpose of determining how leave accrues and is paid:
Standard hours: Hours an employee is required to work under their employment agreement and that the employer must pay them for.
Additional hours: Hours that an employer is not required to make available to an employee, that the employee has the right to refuse and for which the employer must make an additional payment for.
Casual hours: Hours worked by an employee whose employment agreement does not require the employer to offer any work and does not require them to accept any work offered.
Annual leave
Under the current system, employees are entitled to four working weeks of employer-paid annual leave for every 12 months of continuous employment. Employees can carry over any unused annual leave or request in writing to cash up to one week’s entitlement each year.
The Act will replace the current four-week entitlement model with an hours-based accrual system. Employees will accrue annual leave in hours from their first day of employment based on their standard hours worked. This will be at a minimum rate of 0.0769 hours per standard hour worked, with no cap on accrual. In each 12-month period (not including the first 12 months of employment), an employee may request to cash up a maximum of 25% of annual leave in their balance (including any carried over amount). Annual leave may be taken in hours against standard hours.
Annual leave will continue to accrue during periods of paid statutory leave, parental leave, volunteer leave, and jury service, but will not accrue during any other unpaid leave or periods where the employee receives compensation under the Accident Compensation Act 2001.
Sick leave
Currently, employees are entitled to 10 days of sick leave per year if they have at least six months of continuous service or average at least 10 hours of employment per week (including at least one hour per week or 40 hours per month) over six months of non-continuous service. Any unused sick leave is added to the next year’s entitlement, which is capped at 20 days.
Sick leave is a lump sum entitlement and is not pro-rated, so employees who do not meet the criteria for any given year are not entitled to the sick leave entitlement but may use any sick leave balance carried over from the previous year. Additionally, sick leave can only be used in full days, unless otherwise agreed with the employer.
Under the Act, sick leave will accrue in hours in proportion to standard hours of work from day one. This will be at a minimum rate of 0.0385 hours per standard hour worked, with a cap of 160 accrued hours. Sick leave may also be used in hours to take any part of a day off work. Sick leave may be taken against standard hours and additional hours.
Bereavement and family violence leave
Currently, employers are entitled to three days of employer-paid bereavement leave in the event of the death of an immediate family member (including in case of miscarriage or stillbirth), or for one day if not an immediate family member, after six months of continuous service. Employer-paid family violence leave of up to 10 days per year is provided to employees with at least six months of continuous service. These entitlements can only be used in full days.
Under the Act, the existing entitlements to bereavement and family violence leave will be available to all employees (including those who work casual hours) from day one. The entitlements remain day-based but may be taken in part days.
Leave payments
The current system sets out different leave payment calculations for different types of leave, including complex calculations for variable components of pay like overtime, commission, and allowances.
Under the Act, the same hourly leave pay rate will be used for all types of leave:
Salaried employees: the salary amount for one standard hour of work in the pay period leave is taken.
Waged employees: the lowest hourly rate payable for the day on which leave is taken.
Employees paid wholly or partly by piece rates (where an employer is paid for the number of pieces produced): an hourly average of piece wages for each hour of leave.
Employees paid wholly or partly by piece work or commission: the greater of the minimum wage for each hour of leave or their combined hourly rate and hourly average of their piecework wages.
Other components of pay, such as bonuses, commissions and variable allowances, will not be included in the hourly leave pay rate. However, fixed allowances remain payable in full during leave.
Leave compensation payments
Currently, employers and employees can agree to use “pay as you go” (8% of gross earnings) instead of providing paid annual and sick leave if work is intermittent or irregular or for a fixed term of less than 12 months.
Under the Act, a leave compensation payment equivalent to 12.5% of an employee’s ordinary hourly rate may be paid in lieu of accruing annual and sick leave on:
Every additional hour worked above standard hours.
Every casual hour worked.
Employer action: PREPARE TO ACT
The Act represents a sweeping redesign of New Zealand’s leave framework, with major implications for payroll and employer compliance. Although the Act will not take effect until 6 August 2028, employers should begin reviewing payroll systems, leave management processes, and employment agreements to prepare for the new hours-based leave framework.
Employers should also continue complying with the Holidays Act 2003 and monitor further implementation guidance from the government, which is expected to be published on Employment New Zealand’s website here (opens a new window).
Written in collaboration with:
Niall Martin
Head of People Solutions, Lockton New Zealand
niall.martin@lockton.com (opens a new window)
Further Information
