What do I need to know about the new leave laws in New Zealand?
New Zealand has passed a major overhaul of its employment leave laws. The new Employment Leave Act 2026 will eventually replace the Holidays Act 2003. The aim is to make leave easier to understand and reduce mistakes in holiday pay. However, the new rules will also affect when employees become entitled to leave, how leave builds up and how much they receive while they are away from work.
The most important point is that the new rules do not take effect until 6 August 2028. Until then, employers must continue to follow the current Holidays Act. They cannot introduce the new rules early, even if an employee agrees. Here is what employees need to know.
Annual leave will build up in hours
Under the current Holidays Act, employees become entitled to four weeks of annual holidays after 12 months of continuous employment. From August 2028, annual leave will accrue in hours from the first day of employment. Employees will receive at least 0.0769 hours of annual leave for each standard hour worked.
For example, someone with 40 standard hours per week will build up about 3.08 hours of annual leave each week. Over a full year, this should equal about four weeks of leave.
Annual leave will also be used in hours. If you take four hours off, four hours will be deducted from your balance. This may make part-days of leave easier to manage. It should also make your balance easier to understand when your hours of work remain consistent. However, it will be important for your employment agreement to accurately record your standard hours. If the agreement does not reflect the hours you normally work, it could affect how much leave you accrue.
Sick leave will accrue from day one
Sick leave will also build up in hours from the beginning of employment. Employees will accrue at least 0.0385 hours of sick leave for each standard hour worked. The statutory sick leave balance will be capped at 160 hours. This replaces the current system, under which most employees become entitled to 10 days of sick leave after six months.
Although the new system starts from day one, this does not mean a new employee immediately receives 10 days of sick leave. The employee will only be able to use the hours they have built up, unless their employer agrees to provide more generous sick leave. For a full-time employee working 40 standard hours per week, sick leave would build up at about 1.54 hours per week. This will help employees who become unwell early in their employment, but a new employee may still have only a small sick leave balance when they first need it.
Casual and additional hours will be treated differently
One of the biggest changes affects casual employees and people who regularly work more than their standard hours. Annual and sick leave will generally accrue only on standard hours. For casual hours and additional hours, employees will instead receive a Leave Compensation Payment.
This payment must be at least 12.5% of the employee’s ordinary hourly rate for those hours. It will be paid with the employee’s normal wages rather than being held as a leave balance. For example, if you have 30 standard hours but work an extra five hours, the five additional hours may attract the 12.5% payment rather than building annual and sick leave. Employees will need to check that:
their standard hours have been recorded correctly;
additional or casual hours are clearly identified; and
the 12.5% payment appears separately on their payslip.
If you are described as casual but actually work a regular pattern, it may be worth questioning whether your employment agreement accurately reflects the real working relationship.
One hourly rate will be used for leave payments
The Holidays Act contains several different ways of calculating leave pay. These rules can be particularly difficult when an employee receives commissions, allowances, overtime or changing rates of pay.
The new Act introduces a single leave hourly rate for paying different types of leave. The calculation will generally include ordinary base pay, piece rates and applicable fixed allowances. Some variable payments may be excluded. This means employees who receive regular overtime, bonuses or commissions should pay close attention to how the new calculation affects them.
The new method should be easier to apply, but “impler does not automatically mean every employee will receive the same amount as they do now.
Leave will be available earlier
Bereavement leave and family violence leave will become available from the first day of employment. Employees currently have to meet a six-month eligibility test. These entitlements will remain day-based, although employees will be able to take part of a day where needed.
Annual and sick leave will also begin accruing from day one. This removes the lengthy waiting period, but employees will still need enough accrued leave to cover the time they want to take.
More annual leave can be cashed up
Employees can currently ask to cash up a maximum of one week of their four-week annual leave entitlement each year.
Under the new rules, employees will be able to request payment for up to 25% of their total annual leave balance in each 12-month period. This may include leave carried over from earlier years. An employer will not necessarily have to approve the request. Employees should also think carefully before cashing up leave. Annual leave exists to provide a proper break from work, and receiving extra money may leave you with less time available for rest.
Public holiday rules will become clearer
Employees will still be entitled to public holiday protections, including time-and-a-half when they work on a public holiday. A new 'otherwise working day' test will apply where an employee does not have clearly specified working days. The test will generally look at whether the employee worked, or was on leave, on that day of the week in at least half of the previous 13 weeks.
Alternative leave will also accrue hour for hour. If an eligible employee works five hours on a public holiday, they will generally receive five hours of alternative leave.
What do I need to do now?
You do not need to agree to any immediate changes your employer suggests to your leave entitlements or payments. The present Holidays Act continues to apply until 6 August 2028. However, you can prepare by:
keeping copies of your payslips and leave records,
checking that your current leave balance is correct,
checking that your agreement accurately states your hours,
raising any underpayment concerns now,
asking questions before agreeing to changes, and
getting advice if a proposed agreement reduces an existing benefit.
Your employer cannot simply rewrite your employment agreement without consultation. They must provide proposed changes, give you time to consider them and allow you to obtain advice. Existing arrangements can remain more generous than the new legal minimums.
If you have any issues with the way that your leave is being handled or paid by your employer, or they are suggesting changes to your leave entitlements based on the new act which you are not sure about, get in touch with Mathews Walker Employment Law today for a free consultation.
MathewsWalker.co.nz | Employment Problems Solved | 0800 612 355
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