Holidays Act Overhaul: Key Changes Employers Need to Understand
The proposed replacement for the Holidays Act has taken a significant step forward, with the Employment Leave Bill introduced to Parliament in March 2026. The reforms aim to simplify a system long criticised for complexity, shifting to an hours-based model and changing how leave is accrued, calculated, and paid.
While the current Holidays Act 2003 remains in force, employers should begin preparing for what is a fundamental shift in how leave is managed.
A Shift to Simpler, Hours-Based Leave
At the core of the reform is a move away from the current “days and weeks” framework to an hours-based accrual model. This is intended to reduce errors and make payroll calculations more consistent.
If passed, the new legislation will include a 24-month implementation period (likely bringing changes into effect around 2028), giving employers time to transition systems and processes.
Key Changes to Leave Entitlements
The Bill introduces several significant changes to how leave is earned and used:
- Hours-based accrual from day one
Annual and sick leave will accrue in hours from the start of employment, rather than being granted after set time periods.
- Annual leave: 0.0769 hours per hour worked (equivalent to 4 weeks per year)
- Sick leave: 0.0385 hours per hour worked, capped at 160 hours
- Immediate access to some leave types
Bereavement and family violence leave will be available from day one, rather than after six months’ service.
- Greater flexibility in how leave is taken
Employees will be able to take leave in partial days (hours), rather than full-day increments only.
- Increased ability to cash up leave
Employees may request to cash up to 25% of their annual leave entitlement each year (increased from the current one-week limit).
- Parental leave payment change
Annual leave taken after returning from parental leave will be paid at the employee’s normal rate, removing the current rules that can result in reduced payments.
Changes for Casual and Variable Hours Work
The Bill also introduces a new approach for casual employees and additional hours worked:
- Leave Compensation Payment (LCP)
A 12.5% loading will apply to all hours worked by casual employees, and to any additional hours worked by permanent employees beyond their contracted hours.
- Replacing “pay as you go” holiday pay
This replaces the current 8% holiday pay model for casual workers, covering both annual and sick leave entitlements in a single payment.
Simpler Calculations and Greater Transparency
To address long-standing compliance challenges, the Bill proposes more consistent calculation methods and clearer reporting:
- Single payment method for leave
All leave types will be paid using a standard hourly rate based on base pay plus fixed allowances.
- Mandatory itemised payslips
Employers will be required to provide detailed payslips each pay cycle, clearly showing leave accrual and usage.
- Updated public holiday test
A new 50% test will determine whether a day is an “otherwise working day” for employees with irregular work patterns (e.g. working that day in 7 of the last 13 weeks).
What This Means for Employers
While these changes are not yet in force, they represent a significant shift in payroll, systems, and employment practices.
Employers should begin thinking about:
- Whether current payroll systems can support hourly accrual models
- How employment agreements and policies may need to be updated
- The potential impact on part-time and casual work arrangements
- Ensuring visibility and accuracy in leave tracking
Early preparation will help reduce risk and avoid rushed implementation once the legislation is finalised.
What Happens Next
The Bill is now progressing through Parliament. We will continue to keep members updated as it develops and will provide further guidance and briefings once the legislation is finalised.
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.