Employment Leave Bill - Update
The Employment Leave Bill, which will replace the Holidays Act 2003 passed its third reading on 29 July 2026. It will come into effect in 2028, giving businesses two years to modify systems, processes, and procedures.
The new framework introduces a simpler, hours-based calculation method for leave:
- Accrual from Day One: Annual leave and sick leave will accrue from the first day of employment, in direct proportion to standard contracted hours.
- Hours-based Entitlements: Employees will take leave on an hourly basis rather than in days or weeks, making it easier to take part days off.
- Compensation for Casual/Additional Hours: Instead of accruing standard leave, casual staff and those working extra hours will receive an upfront leave compensation payment of 12.5% of their ordinary hourly wage, paid at the time those hours are worked.
- Immediate Access: Bereavement leave and family violence leave will be accessible from the first day of employment.
- Consistent Pay Rates: All leave types will be paid using a single hourly rate based on the employee's base wage, simplifying previous complex averaging rules.
The Employment Leave Bill shifts the administrative burden from calculation complexity to data tracking. For businesses, this means a total overhaul of payroll systems, but a significant reduction in long-term compliance risks and legal disputes.
Major Impacts on Business
- Complete Payroll System Overhaul: Software must transition from tracking days/weeks to a continuous, real-time hourly accrual system.
- Cash Flow Adjustment: Paying a 12.5% premium upfront for casual or overtime hours replaces back-dated holiday pay liabilities.
- Simplified Rostering: Part-day absences no longer require complex daily pay calculations, you simply deduct the exact hours taken.
- Reduced Legal Risk: Replacing the convoluted "Ordinary Weekly Pay" calculations drastically limits the risk of accidental underpayments.
- Day-One Liabilities: Budgets must account for immediate sick leave and bereavement leave access for all new hires.
Recommended Next Steps for Employers
- Audit Current Systems: Check if your existing payroll software can track leave balances down to the hour.
- Review Employment Agreements: Standard templates will need updating to reflect hourly leave accrual language.
- Assess Casual Staff Budgets: Model the financial impact of the immediate 12.5% leave compensation premium on your casual workforce.
Need Support?
If you would like help understanding how these changes may affect your business, or preparing your systems and processes, our team can provide practical, tailored advice.
For further information, contact Michael Prisk at michaelp@businesscanterbury.co.nz or reach out to our HR Advice team at hradvice@businesscanterbury.co.nz.
MBIE Guidance on Leave Calculations
Part of the reason for the 24-month transition period is to allow employers to adopt the new leave calculation formulas. Because the Employment Leave Bill significantly changes how leave is calculated, MBIE has released several preliminary resources and plans to expand them before the law takes full effect, expected in 2028.
Current Resources Already Available
- The Technical FAQ Guide: MBIE has published an exhaustive Technical FAQ Document detailing how the new formulas work, including specific breakdowns of part-day leave calculations and the 12.5% casual premium calculation.
- System Comparison Explanations: The MBIE Policy Snapshot provides side-by-side comparisons of the current system against the new hours-based methodology, helping payroll administrators spot structural differences.
For more details on the proposed framework, or to review the bill's legislative progress, you can refer directly to the Ministry of Business, Innovation & Employment, or track the bill's status on the New Zealand Parliament website.
If you have any queries on this, or would like more information on these changes, visit our website or contact me at michaelp@businesscanterbury.co.nz
