Understanding the Proposed Employment Leave Act: What NZ Employers Need to Know

If New Zealand’s holiday pay rules have ever left you scratching your head, you’re in good company. The Holidays Act 2003 is expected to be replaced by the proposed Employment Leave Act – a major overhaul designed to simplify leave entitlements, reduce errors, and better reflect today’s working patterns.

Although the Employment Leave Bill isn’t expected until 2026, Cabinet’s September 2025 policy decisions provide a strong indication of what’s likely, and what employers may need to start preparing for.

Why the Holidays Act Overhaul?

The current Holidays Act is notoriously complex. Even defining a “week” or “day” can be tricky for part-time or variable-hours employees, and mistakes have cost businesses millions in remediation.

The new framework aims to make leave calculations simpler, reduce compliance risk, and align with modern work arrangements.

What’s Changing Under the Proposed Employment Leave Act

• Key changes proposed under the new Employment Leave Act include:
  
  Leave entitlements will start from day one of employment
  Hours-based accrual for annual and sick leave
  A new working day test for public holidays
  More flexibility to cash up leave balances (up to 25% annually)
  Casual employees receiving 12.5% leave compensation per hour worked (applied to gross earnings)
  Additional hours beyond standard hours will be compensated with a 12.5% payment per hour (no annual or sick leave accrual)
  Parents returning from parental leave to be paid full rates for annual leave.

What Employers Should Do Now

Employers will need to review employment agreements to clearly define standard hours, additional hours, discretionary hours, allowances, and commission payments.
For staff with irregular schedules, creating a “notional roster” will help define entitlements consistently.

Under the new system, employees will earn annual and sick leave based on the actual standard hours they work. These hours are recorded and added to a leave balance, which can be used in hourly increments giving employees greater flexibility. Leave for bereavement and family violence will still be taken in full days.

Transition Timeline

If the Bill passes as currently proposed, businesses would have up to two years to transition. Early preparation is key. Reviewing payroll systems, updating employment agreements, and assessing cash-flow impacts now will help ensure a smooth shift and avoid last-minute compliance stress.

Get Ready with RSM

Need help preparing? RSM’s People & Culture team can help you review agreements, update or implement HRIS systems, and plan for a confident transition. Reach out to our team to get started and stay ahead of the change.

These changes reflect Cabinet policy decisions as of September 2025. Details may change before the Bill becomes law. Readers should stay updated as the law progresses.

Contact Kerryn Strong to learn more.