Leaving the Holidays Act behind: New Zealand prepares for a new leave regime

On 9 March 2026, the New Zealand Government introduced the Employment Leave Bill to Parliament. If enacted, the Bill will repeal and replace the Holidays Act 2003 and largely reflects changes signaled by the Ministry of Business, Innovation and Employment (MBIE) in policy announcements last year (see summary here).

The Bill’s stated aim is to create a simpler, more streamlined leave framework that gives employers and employees greater certainty about their entitlements and obligations. As the Bill progresses through Parliament, its content may change.

 

At a glance

• The Employment Leave Bill, introduced on 9 March 2026, will replace the Holidays Act 2003 and aims to deliver a simpler, more predictable leave system for employers and employees.
• The new regime will commence two years after Royal assent for most sectors, while the state schooling sector will transition 10 years after Royal assent.
• The Bill creates three types of hours – standard, additional and casual – which determine how leave is earned and paid.
• Leave will accrue in hours from day one, with new rules for annual leave, sick leave, alternative leave, bereavement leave and family violence leave, and a new “otherwise working day” test for public holidays.
• Leave payments will shift to hourly calculations. A 12.5% leave compensation payment will apply to additional and casual hours, and the Bill introduces a process intended to support remediation of past Holidays Act underpayments.
• The Bill is awaiting its first reading, and its content may change as it progresses through Parliament.

 

Commencement timeline

The Bill, when passed, will commence two years after it receives Royal assent. This will apply to all employees except those employed in the state schooling sector.

For the state schooling sector, the Bill will commence 10 years after Royal assent. Until then, state schooling sector employees will continue to accrue leave under the Holidays Act 2003.

 

Key takeaways

Definition of working hours

The Bill introduces a distinction between types of working hours, which determines how leave is accrued and paid. The Bill defines three categories:

• Standard hours – hours under an employee's employment agreement that the employee is required to work and that the employer must pay the employee for (regardless of whether the employer in fact requires the employee to work those hours). Standard hours also include any paid breaks and any hours that would have been standard hours but for periods of paid leave, certain unpaid leave, or paid absences outside legislation.
• Additional hours – any hours worked on top of standard hours that the employer does not have to make available and the employee is free to decline. If worked, these hours must attract an additional payment, unless the employee is salaried and their agreement clearly states that no extra payment is owed because the salary already compensates for such hours.
• Casual hours – hours worked in genuinely casual arrangements, where the employer is not required to offer work and the employee is not required to accept any work offered.

Accrual of leave

Annual leave

• Annual leave will accrue at a minimum rate of 0.0769 hours per standard hour worked, from the first day of employment.
• Annual leave will accrue during periods of paid statutory leave, parental leave, volunteer leave and jury service.
• Annual leave will not accrue when an employee is on leave under the Accident Compensation Act 2001.
• Annual leave will be recorded in hours, and balances will not be adjusted if the number of standard hours changes.

Sick leave

• Sick leave will accrue at a minimum rate of 0.0385 hours per standard hour worked, from the first day of employment.
• Entitlements will cap at 160 hours.
• Sick leave will be taken in hours.

Alternative leave

• Alternative leave will accrue at the rate of one hour (or part hour) for each hour (or part hour) worked by the employee on a public holiday.
• On-call employees whose employment agreement states that they may be required to be on call on a public holiday, but who are not called into work, are entitled to the number of hours the employee would have otherwise worked that day.
• On-call employees called into work will accrue leave for each part hour or hour they are on call or work, up to a maximum of the number of hours they would have otherwise worked that day.

Bereavement leave and family violence leave

• Bereavement leave and family violence leave entitlements will arise from the first day of employment.
• Both will remain day-based entitlements, and employees may take part-days.

New “otherwise working day” test for public holidays

A new “Otherwise Working Day” (OWD) test will apply to public holidays for employees who do not have set days of work (or a pattern of days of work).

Under the new test:

• A day will be treated as an OWD if the employee has worked, or was on paid or unpaid leave, for 50% or more of the same day of the week as the public holiday in the preceding 13 weeks.
• The number of hours that the employee would have worked on the public holiday will be either:
  • the number of hours the employee would have worked according to their employment agreement; or
  • where the employment agreement does not specify the number of hours, an amount calculated using a specified formula that averages their recent work pattern.
• If the employee took parental leave, volunteer leave, or leave covered by the Accident Compensation Corporation scheme during the relevant period, the 50% test would reset to the period from the end of that leave to the public holiday, unless no corresponding weekdays fall in that post-leave period (in which case the day is not an OWD).

 

Leave payment calculation and leave compensation

Annual leave payments

Annual leave payments will be calculated at an hourly rate that will not include allowances or any productivity-based or incentive payments (including commissions). Employers will no longer need to consider whether bonus or incentive payments are “truly discretionary” when calculating leave payments.

The Bill proposes the following approach:

• Salaried employees will be paid the hourly rate attributable to one standard hour's work.
• Waged employees will be paid the lowest hourly rate payable under their employment agreement on the day the employee makes the request.
• Employees paid partially or wholly by commission will be paid the greater of their standard rate of work and the applicable minimum hourly rate of pay.
• Employees paid partially or wholly by piece work will be paid the greater of:
  • the total of their hourly rate and the average hourly rate for piece work, and
  • any applicable minimum hourly rate.
  • The average hourly rate is calculated by dividing total piece work wages paid in the relevant 93-day period by the number of hours actually worked (excluding paid leave hours) during that period.

Public holiday payments

• Employees who work on a public holiday must be paid their contractual public holiday rate minus any identifiable amount, plus an additional payment equal to the greater of:
  • 50% of their ordinary hourly rate; or
  • the identifiable amount.
• The identifiable amount is calculated by subtracting the employee's base hourly rate (excluding allowances, incentive payments and leave compensation payments) from any agreed hourly rate for working that day or public holiday.
• If an employment agreement specifies the hours the employee would have worked but for the public holiday, and the employee works fewer hours, the employer will need to pay the difference at no less than the applicable rate of leave payment, along with any leave compensation payment payable.

Leave compensation payment

Employees who work additional hours on top of standard hours, or who work casual hours, will be entitled to a leave compensation payment set at 12.5% of the employee's ordinary hours. Employers would need to pay the leave compensation payment to all employees who are entitled to it.

Remediation

The Bill includes a process intended to create a remediation framework for employers to provide reasonable compensation to employees who have not been paid the correct entitlements under current legislation.

• An employer may elect to follow the remediation process set out in the Bill if they were an employer before the relevant section comes into force and they wish to resolve outstanding liabilities to employees under the Holidays Act 2003.
• The Bill also states that the remediation process is not the only means by which an employer may resolve any outstanding liability to employees under the Holidays Act 2003.

Conversion of existing leave

The Bill includes calculations to convert employees’ existing leave days into leave hours. From the commencement date, all existing leave will need to be paid out in accordance with the Bill’s leave payment calculations.