Employment Leave Act 2026

The Employment Leave Act 2026 received Royal assent on 6 August 2026 and will replace the Holidays Act 2003 on 6 August 2028. The new rules will apply from the beginning of an employee's first pay period starting on or after 6 August 2028. The new Act is intended to provide a simpler and clearer leave system and greater certainty for employees and employers. Until then, employers must continue to comply with the Holidays Act 2003.

Annual Leave

The current Holidays Act, employees become entitled to four-week annual leave after 12 months of continuous employment.

The new changes will allow employees to start accruing annual leave from the first day of work, building up progressively throughout their employment.  

The new system is moving away from measuring leave in weeks and days, instead annual leave will be measured in hours, is intended to provide a simpler and clearer system for employees with inconsistent work patterns.  From 2028, an employee will accrue annual leave at not less than 0.0769 hours for every standard hour or part of a standard hour.

Where does 0.0769 come from?

It is simply:

4 weeks ÷ 52 weeks = 0.0769

For example, someone with 40 standard hours each week accrues:

40 × 0.0769 = 3.076 hours per week

and over 52 weeks:

3.076 × 52 ≈ 160 hours, equivalent to four 40-hour weeks.

Example

An employee works 37.5 standard hours each week. The minimum annual leave that the employee accrues each week is 2.88375 hours, calculated as follows:

37.5 × 0.0769 = 2.88375

Leave Payments

Currently, the system requires employers to compare an employee’s Ordinary Weekly Pay (OWP) and Average Weekly Earnings (AWE) and pay the highest out of the two when the annual leave is taken. These calculations have been a significant source of complexity and payroll compliance issues.

Their entitlement will change to an hourly-rate leave system, which will remove the OWP and AWE calculations.  The new system uses an hourly leave rate. For a wage earner, this is generally the lowest hourly rate payable under the employment agreement for the relevant shift; salary is converted to an hourly amount, and fixed allowances continue where applicable. Piecework and commission have additional rules.

Sick Leave

Under current legislation, employees generally become entitled to sick leave after six months of employment, with a minimum entitlement of 10 days per year regardless of the number of days they work each week.

Under the new Act, sick leave will accrue from the first day of employment at a statutory minimum rate of 0.0385 hours for every standard hour. This means employees with fewer standard hours will accrue proportionately less sick leave. The maximum statutory accrued balance will be 160 hours.

Where does 0.0385 come from?

It is simply:

2 ÷ 52 = 0.03846... ≈ 0.0385

For an employee working five standard days each week, two working weeks equates to 10 days.

Casual work and additional hours

Under the current Holidays Act, some eligible employees who work sufficiently irregularly or intermittently can be paid 8% pay-as-you-go holiday pay instead of accruing annual holidays.

Under the new Act, employees will instead receive a Leave Compensation Payment (LCP) for additional hours and casual hours. The LCP must be at least 12.5% of the ordinary hourly rate for those hours, rather than annual and sick leave accruing on them.

Other changes to prepare for:

• Public Holiday Entitlements – New methods to determine employee entitlement, including a 13-week assessment where required.  The new 'other working day' (OWD) test looks at whether the employee worked or was on leave on 50% or more of the corresponding weekdays during the preceding 13 weeks, where that test is needed.

• Three new categories of hours - Standard hours/Additional Hours/Casual Hours

• Cashing up – The employee may request cashing up of up to 25% of their annual leave balance as at the day before their employment anniversary during the following 12 months. The employer can decline and can have a policy preventing cash-ups.

• Parental leave – MBIE expressly says annual leave taken after parental leave will be paid like other annual leave.

• Pay Records – The Act will require a pay statement for each pay period in which an employee works or receives paid leave, containing prescribed pay, deduction and leave information.

How should the employer prepare?

These changes will come into force in 2028; the current Holidays Act will remain in force until 6th August 2028.

Businesses should be preparing to;

• Update employment agreements

• Review payroll systems and software

  • Check existing Holidays Act leave data and remediate any errors before converting balances

• Staff training for payroll and HR employees

• Convert existing leave balances

• Communicate with each employee what is changing and how it will affect them

Employers should aim to update employment agreements by 6 August 2028, with a transitional period until 6 August 2029. Importantly, employers must still comply with the new Act as of August 2028, even if their employment agreements have not yet been updated.  For employers who will be applying the transitional period to 6 August 2029, where the employment agreement and the new Act differ, the employer must apply whichever entitlement is more favourable to the employee.

Get in Touch

Business Studio is here to help you understand the significant changes in the way the Employment Leave Act 2026 will affect your business. Now is a good time to start planning and understanding the changes.

Disclaimer: The information provided in this article is general in nature and does not constitute personalised business or tax advice.