Painless Payroll Compliance
Nothing Changes Until August 2028
The Holidays Act stays in force until 6th August 2028. You'll need to keep applying the current rules until then and keep correcting any historical underpayments. Any historical underpayments won't disappear in 2028, you'll still be responsible for them.
There is no early adoption and no phased rollout. Every part of the new Act switches on at once, for everyone, on the same day.
Whilst the act doesn't come into force until 2028, there is plenty you can do today to start preparing for this change.
What is the Employment Leave Act?
The Employment Leave Act 2026 is the New Zealand law that replaces the Holidays Act 2003. It is the biggest change to New Zealand leave law in more than two decades, and the first designed to be run by a payroll system rather than interpreted by one.
Under the new Act, leave is counted and paid in hours rather than weeks and days. Every hour an employee works is classified as standard, additional or casual, and one hourly rate replaces the four competing leave pay calculations in the current law
One Idea Behind Everything: Three Types of Hours
The new Act stops treating every hour the same. Each hour someone works falls into one of three buckets and the bucket decides whether that hour earns leave or earns a payment instead of leave. Get this right and the rest of the Act follows.
This is not admin detail. It is the main lever on your leave cost. Someone whose hours sit mostly in the standard bucket builds up paid time off. The same person on casual hours gets 12.5% in their pay instead. Most employment agreements were not written with these categories in mind, so expect real ambiguity for part of your team until agreements are updated.
What is different under the Employment Leave Act?
Eight changes cover most of what your team will notice. The dates below all refer to commencement on 6 August 2028.
Annual Leave
Now
Four weeks arrive as a lump sum after each 12 months of continuous employment.
2028
Accrues in hours from day one, at 0.0769 hours for every standard hour worked.
Still four weeks a year for a full-timer. But there is no 12-month wait, and banked hours no longer rescale when someone changes their hours.
Sick Leave
Now
Ten days after six months, then every 12 months. Same ten days whether you work 10 hours a week or 40.
2028
Accrues from day one at 0.0385 hours per standard hour, capped at 160 hours.
Full-timers land in the same place at 80 hours a year. Part-timers get proportionally less than today's flat ten days and shift shape drives how much less.
How Leave Is Paid
Now
Four competing calculations: ordinary weekly pay, average weekly earnings, relevant daily pay, average daily pay.
2028
One hourly rate for every leave type, based on the lowest hourly rate payable for that shift.
Far simpler, and far harder to get wrong. But commission, bonuses and overtime no longer lift the leave rate, so anyone on variable pay will feel it.
Casual and Overtime Hours
Now
Pay-as-you-go at 8%, optional, by agreement and only for genuinely irregular work.
2028
Leave Compensation Payment at 12.5%, compulsory, on every casual hour and every additional hour.
Three things change at once. It is compulsory, it covers sick leave as well as annual leave, and it now applies to permanent staff working past their contracted hours.
Public Holidays
Now
Paid day off if it is an "otherwise working day", judged against a list of factors.
2028
An objective 50% test: did they work that weekday at least half the time in the last 13 weeks?
For Labour Day, look back at the last 13 Mondays. Worked seven or more, it counts. Mechanical and auditable, but your payroll has to run it per person, per holiday.
Alternative Holidays
Now
Work any part of a qualifying public holiday and you earn a whole day off. Cash up after 12 months.
2028
Accrues hour for hour against hours actually worked or on call. Can be cashed up at any time.
Fifteen minutes of work stops earning a full day. Hours in, hours out, and staff can take them in hours too.
Bereavement and Family Violence Leave
Now
Available after six months, or on an eligibility test. Taken as full days.
2028
Still counted in days, but available from day one to everyone, including casual staff. Part days allowed.
A modest cost increase for most small businesses and a genuine goodwill improvement at the moments that matter most to your team.
Pay Slips
Now
Not legally required. Employees can ask for the information.
2028
Mandatory every pay period, itemising payments, including leave balances.
Small change if your payroll is automated. A real operational change if you run on spreadsheets, and the one most likely to surface historical errors.
Who Feels This The Most?
The Act applies to everyone, but the impact is not spread evenly. As a rule, the more variable your workforce, the more this moves for you, in both directions.
Largest Impact
Hospitality, Retail, Events, Labour Hire, Seasonal Agriculture
Heavy casual use, so the step from 8% to 12.5% lands directly.
Big part-time cohorts, so the sick leave change is significant.
Also the sectors with the most Holidays Act breach history, so the most to gain from a calculation that works.
Moderate Impact
Construction, Healthcare, Transport, Manufacturing
Regular overtime above contracted hours now attracts the 12.5% payment.
Rostered staff need the rolling 50% test at every public holiday.
Higher injury rates make the ACC accrual change material.
Lightest Impact
Professional Services and Salaried Office Teams
Salaried full-timers on fixed hours end up close to where they are today.
Commission-based roles and anyone on variable pay are the exceptions.
Still a full payroll migration and an agreement rewrite.
When Does The Employment Leave Act Take Effect?
Two years sounds generous. It is not, because the work that matters most, classifying hours and cleaning up your data, has to happen before anyone can build anything.
29 July 2026
Third reading passed. The Holidays Act 2003 is repealed and replaced.
6 August 2028
Commencement. Every provision switches on, leave balances convert and the Holidays Act stops applying.
By 6 August 2036
The state schooling sector transitions, on a longer runway for school payroll.
6 August 2026
Royal assent. The clock starts, and the commencement date is set at 24 months out.
6 August 2029
Employment agreements must be aligned. During that year, more favourable leave terms still have to be honoured.
Free Guide Download
Everything on this page, plus the parts that take longer to explain and cost more to get wrong.
A three-phase readiness checklist, from now through to go-live in 2028.
Where new cost comes from, and where the savings sit.
Three worked scenarios: a café, a retailer with part-timers, and a salesperson on commission.
What happens to existing leave balances at changeover.
The four questions your team will ask, with answers you can use.
Frequently Asked Questions
When does the Employment Leave Act start?
The Employment Leave Act commences on 6 August 2028, which is 24 months after Royal assent. The Holidays Act 2003 stays in force until that date. There is no phased rollout and no option to adopt the new Act early. Every provision switches on for everyone on the same day, from the first pay after the transition date.
Does the Employment Leave Act replace the Holidays Act 2003?
Yes. The Employment Leave Act 2026 repeals and replaces the Holidays Act 2003 from 6 August 2028. Repealing the Holidays Act does not wipe out arrears that arose under it, so you still have to correct historical underpayments. The new Act does include a framework for settling estimated arrears with full and final effect.
Why is the Holidays Act being replaced?
The Holidays Act was written for a Monday to Friday, nine to five week. Applied to variable hours, casual rosters and mixed pay structures, it produced widespread and expensive failure. Between November 2015 and June 2020 the Labour Inspectorate recovered more than $237 million for 227,300 employees, and breaches cluster in the sectors where most small businesses operate.
How does annual leave change?
Four weeks a year stays, but it is expressed as an accrual rate of 0.0769 hours for every standard hour worked, starting from day one instead of after 12 months. A 40-hour-a-week employee accrues 160 hours a year, which is exactly four 40-hour weeks. Because hours are banked at the value they were earned at, balances no longer rescale when someone changes their hours.
How does sick leave change?
Sick leave accrues at 0.0385 hours for every standard hour worked, from day one, capped at 160 hours. A full-time employee earns 80 hours a year, the same as today's ten eight-hour days. Part-time employees earn proportionally less than the current flat ten days, and how much less depends on shift shape rather than total hours. Sick leave can also be taken in part days.
What is the Leave Compensation Payment?
The Leave Compensation Payment, or LCP, is 12.5% of an employee's ordinary hourly rate, paid in each pay period on every casual hour and every additional hour worked. It replaces pay-as-you-go at 8%. It is compulsory rather than by agreement, it applies to permanent staff working beyond their standard hours, and it covers sick leave as well as annual leave, which is part of why the rate is higher.
Will my employees lose leave?
Annual leave is unchanged in total at four weeks a year, just counted in hours. Sick leave becomes proportional to hours worked, so full-timers are unaffected and part-timers receive less than the current flat ten days. Nobody's existing balance is reduced at changeover, with one exception: casual employees' sick leave balances do not carry over. That conversation is worth having early and in writing.
What should I do now?
Start by classifying every employee's hours as standard, additional or casual, because that decides most of your future leave cost. Then check you are actually capturing hours worked per day per employee, ask your payroll provider for their roadmap in writing, and deal with any legacy Holidays Act exposure while your current records are still intact. The full three-phase checklist is in the guide.