Holidays Act Replacement: What Employers Need to Know

Holidays Act Replacement Passes First Reading: Key Changes for Employers 

The long-awaited replacement for the Holidays Act has now been introduced to Parliament and passed its first reading.

This piece of legislation has been under review for several years, with widespread acknowledgement that the current system has become overly complex for employers to administer and difficult for employees to understand.

The proposed Employment Leave Act aims to simplify leave calculations, modernise how entitlements are accrued, and create clearer rules for variable work patterns.

Highlights include:

• A single leave calculation model for multiple leave types
• Sick leave moving to a pro-rata accrual model based on hours worked
• A simplified Leave Compensation Payment for additional and casual hours
• A clearer test for determining Public Holiday Leave eligibility

Below is a summary of the key changes employers should understand at this stage.

Key Changes Employers Need to Know

A. New Concepts for Working Hours

The new Act introduces three categories of hours:

• Standard hours – contractually required hours
• Additional hours – hours beyond standard hours where extra payment applies
• Casual hours – where no ongoing offer or obligation to accept work exists

These categories form the basis for how leave is earned and paid under the new legislation.

B. Annual Leave (Major Overhaul)

Under the Holidays Act (current system)

• Entitlement: 4 weeks after 12 months of continuous employment
• Calculated based on ordinary weekly pay or average weekly earnings
• Leave held and taken in weeks/days

Under the new Employment Leave Act

• Accrues from day one at 0.0769 hours per standard hour worked
• Leave is tracked and taken in hours, not weeks/days
• Accrues during paid statutory, parental, volunteer, and jury leave
• Does not accrue during unpaid leave or ACC periods
• Employees can request to cash up 25% of their annual leave balance each year (currently capped at 1 week)

 Impact: This approach provides far greater clarity in payroll calculations, reduces reliance on averaging formulas, and creates more consistency for employees with variable hours.

C. Sick Leave

Under the current Act

• Entitlement only after 6 months
• 10 days per year (with some carryover allowed)

Under the new Act

• Accrues from day one at 0.0385 hours per standard hour worked, capped at 160 hours accumulated
• Leave is taken in hours rather than days
• Not payable on termination (same as current)

 Impact: This introduces a smoother accrual model that aligns sick leave entitlements more closely with actual hours worked.

D. Bereavement and Family Violence Leave

Under the new Act

• Entitlement begins on the first day of employment
• Leave remains day-based, but part-days may be taken
• Scope of qualifying events remains similar but is more flexible for varied work arrangements

Impact: Immediate entitlement means some onboarding processes and payroll settings will need updating.

E. Public Holidays (Simplified Test)

The new Act introduces a revised Otherwise Working Day (OWD) Test.

A public holiday counts for an employee if:

• They worked (or were on paid or unpaid leave) 50% or more of the same weekday over the past 13 weeks.

 Impact: This is significantly clearer than the current multi-factor test under section 12 of the Holidays Act.

F. Alternative Leave

Under the new Act:

• Employees accrue 1 hour of alternative leave for every hour worked on a public holiday that is an OWD
• Alternative leave may be cashed up at any time

 Impact: Hourly accrual better reflects shift-based and part-time work patterns.

G. Payment for Leave

The new legislation introduces a unified payment approach.

All leave (including annual leave, sick leave, bereavement leave, and public holidays) will be paid at a consistent hourly leave payment rate determined by the Act.

Key changes include:

• Fixed allowances must be fully included
• Removes complex calculations such as:
  • Ordinary Weekly Pay
  • Relevant Daily Pay
  • Average Daily Pay

 Impact: While this simplifies the rules, payroll systems will require significant configuration changes.

H. Leave Compensation Payment (LCP)

A new concept introduced under the Act is the Leave Compensation Payment (LCP).

• 12.5% of the employee’s ordinary hourly rate
• Paid on additional and casual hours
• Replaces accruing annual or sick leave on those hours

 Impact: This is designed to simplify compliance for businesses managing irregular or variable work patterns.

Table: Summary of Key Changes 

What Happens Next?

The legislation has passed its first reading in Parliament, but there are still several stages to go before it becomes law.

Businesses should expect further guidance and clearer timeframes as the bill progresses. Once passed, there will be a two-year implementation period for compliance, and we will keep members updated as developments occur.

Need Help Understanding What This Means for Your Business?

The proposed changes will affect employment agreements, payroll configuration, HR processes, and leave management systems.

Our team can help you understand the changes and prepare for implementation.

• Get in touch with our HR team
• Attend our HR and Employment Essentials workshop which will cover these changes, alongside other critical HR/ER components
• Catch one of our employment law briefings on the proposed changes and when the bill becomes legislation

Resources

For the official legislative material and further detail:

• Employment Leave Bill documentation 
• Holidays Act reform - Ministry of Business, Innovation and Employment