Employment Leave Act 2026: What NZ Businesses Need to Know

The Employment Leave Act 2026 replaces the Holidays Act from 6 August 2028. Our latest article outlines what NZ Businesses need to know about key changes for annual leave, sick leave and payroll for their employees.

Employment Leave Act 2026: What New Zealand Businesses Need to Know

New Zealand’s employment leave system is changing.

The Employment Leave Act 2026 has received Royal Assent and will replace the current Holidays Act 2003 from 6 August 2028.

The new Act changes how annual leave, sick leave, public holidays and other types of leave are calculated and recorded. The aim is to create a simpler system for businesses to administer and for employees to understand.

For New Zealand businesses, the key question is: what will you need to change before 2028?

What are the main changes?

1. Leave will be calculated in hours

One of the biggest changes is moving to an hours-based system for annual and sick leave.

Instead of managing annual leave primarily as a four-week entitlement, employees will accrue leave in hours based on their standard hours of work.

For example, an employee working 40 hours a week will accrue approximately 3.08 hours of annual leave each week. Over a year, this is approximately 160 hours, equivalent to four weeks of their normal working hours.

The employee isn’t receiving more annual leave. The change is in how the entitlement is calculated and recorded.

2. A new 12.5% Leave Compensation Payment

Businesses with casual employees or employees who regularly work additional hours will need to understand a new Leave Compensation Payment (LCP).

For eligible additional and casual hours, employers will generally pay a 12.5% LCP instead of the employee accruing annual and sick leave on those hours.

For example, if an employee earns $30 per hour and works 10 eligible additional hours:

10 hours × $30 × 12.5% = $37.50 Leave Compensation Payment

This will mean payroll systems need to correctly identify the hours that qualify for the payment.

3. Employees will have greater flexibility to cash up annual leave

The new Act will allow employees to request payment for up to 25% of their annual leave balance during each 12-month period.

For example, an employee with 80 hours of annual leave could request to cash up 20 hours.

Employees cannot be forced to cash up their leave, and employers can decline a request.

What does this mean for your business?

For businesses with employees who work regular hours, the new system may be relatively straightforward.

The changes may require more preparation if your business has employees who:

• work variable or irregular hours
• regularly work additional hours
• are casual employees
• work changing rosters or schedules.

Your payroll system and processes will need to be able to handle the new leave calculations and record-keeping requirements.

It is also important that your existing leave records are accurate before the transition to the new system.

When do the changes start?

The Employment Leave Act will come into effect on 6 August 2028.

Until then, businesses must continue to follow the current Holidays Act 2003.

Although 2028 may seem a long way away, it is worth starting to understand the changes now. Payroll software providers will also need time to update their systems for the new requirements.

What should you do now?

You don’t need to change your payroll system immediately, but you can start preparing by:

• reviewing your current leave records
• checking how your payroll system manages leave
• identifying employees with variable or casual working arrangements
• keeping up to date with further guidance as it becomes available.

The Government is continuing to release guidance to help employers and payroll providers prepare for the transition.

Need help preparing for the Employment Leave Act?

Our experienced team can help you understand what the changes could mean for your business and identify any areas of your payroll or leave processes that may need attention before the new rules take effect.

The earlier you understand the changes, the easier it will be to make the transition. Get in touch with us today.

Together we can achieve more.