The Employment Leave Act

Upcoming Reforms to New Zealand's Holidays Act

The 2003 New Zealand Holidays Act has been a complex and hard to navigate piece of legislation for employers and employees alike for the last two decades. Issues around the calculating of leave for workers with variable hours has seen payroll administrators issuing underpayments estimated in the billions. That’s right BILLIONS. The on flow from this is not only a cascade of remediation efforts by major employers but frustration and confusion from those that it has affected. Now, after years of false starts and reviews the current coalition government has finally greenlit a complete overhaul. In August this year (2025), Cabinet approved the appeal of the current Act to replace it with the simpler Employment Leave Act (ELA), set to be introduced in early 2026. The expectation is that there will be a 24 month implementation period, with a potential that the schooling sector may take up to 10 years. The good news is that these new reforms promise clarity although there is still strong debate over who will really benefit. 

In a nutshell the changes aim to move from a days-based to an hours-based system. This means that as an employee your entitlements will become more proportional from the first day of your employment. Brooke van Velden the Workplace Relations and Safety minister has promoted the Act as a “win for workers, business and New Zealand”, however there are those that critique it as creating new inequities, particularly for vulnerable workers. Below we take a deeper dive into the key reforms, the concerns raised, and the issues still left hanging. 

Key changes: Hourly Accrual and Day-One Entitlements

The ELA seeks to reduce compliance pressures and preserve the protections that it offers. Here is what employers and workers can expect. 

• Annual Leave Overhaul: Currently employees receive entitlements after 12 months of working. This has been kicked to the curb. Now as an employee you can expect to earn 0.0769 hours of annual leave for every contracted hour worked, starting from day one. For a standard 40 hour week this works out to be 160 hours (four weeks) over a one year period. Employees will also have the option to cash out up to 25% of their leave balance annually. Parents returning from parental leave will no longer have their earnings averaged out over a 52-week period and will instead follow the standard rules outlined in the ELA. 

• Sick  Leave Proportionality: Sick leave will also now accrue on an hourly basis based on contracted hours with a cap set to 160 hours (10 days). This will replace the current standard of a uniform 10 day entitlement. This means that employees working part time will also be able to earn sick according to the hours that they work. Sick leave, like manual leave can also be taken in part days.

• Public Holidays and Alternative Holidays: A new test for an “otherwise working day”  (OWD) will help to simplify an employee's eligibility so that a day will now qualify if they worked or were on paid leave for 50% or more of the relevant days in a prior period. For employees working on a public holiday OWD will earn alternative hours at a 1:2 ratio, and they will also receive time-and-a-half-pay, and get paid for unworked hours. This is a shift away from the current full-day alternative. 

Lets illustrate this with an example so that you can get the full picture: 

Let’s say Sarah works at the local 4 Square supermarket. She has around 3 shifts per week which equal to about 20 hours in total. Under the new ELA a public holiday like Waitangi Day will only count as an OWD if she worked or was paid leave for at least half of her rostered days in the last 4 weeks. So let's look at the maths:

Is Waitangi Day an OWD for Sarah?

• Sarah was rostered on for 12 shifts in the last 4 weeks

• She got paid leave or worked for 7 of them ( this is about 58% which is more than half)

• YES! Waitangi day is an OWD for Sarah

Sarah is rostered to work a 6 hour shift on Waitangi Day in the below table we can see what Sarah gets now and what she will get when the new ELA comes into effect.

What She Gets	Current Rules (Holidays Act)	New Rules (Employment Leave Act)
Pay for the Shift	Normal rate + half (1.5x) for 6 hours = $252 (at $28/hr)	Same: 1.5x pay = $252
Extra Time Off	Full 8-hour "alternative holiday" day later	Just 6 hours (matches her shift)—take it anytime as paid time off
If Shift Cut Short?	No extra pay for missed hours	Paid normal rate for any unworked rostered hours

Why it is easier for Sarah

This is a win for Sarah because there will be no more wasting a full day she can’t - exact hours fit her busy life. This is fairer to her, so long as her boss keeps track of her rosters correctly. Some details around “look back” weeks still need finalising. 

• Bereavement and Family Violence Leave: This is now available from day one. Employees will no longer have to wait six months to qualify. These will remain as day based accumulation but will offer part-day usage which will enhance the accessibility. 

• Casual and Overtime Workers: Casual and extra hours worked beyond those which are contracted (not including those on salaries) by employees will now get a 12.5% up front leave compensation payment on pay. This replaces the current 8% holiday pay and very limited entitlements. This is a win for those working in the gig economy.

• Payment Standardisation: All leave will be paid at a single hourly rate based on base wage, with fixed allowances paid in full. Variable pay such as commissions and bonuses will be excluded from these calculations. 

• Pay Statements and Other Tweaks:  Employers will need to provide detailed pay and leave statements per period. For irregular hours (weekends only or rotating shifts) the ELA contains within it sample calculations, which means it will now be easier for your employer to calculate your entitlements if you work 10 hours one week and 20 hours the next. 

Winners, Losers and Stakeholder Tensions

Although the ELA promises simplicity it has divided opinions. The New Zealand Council of Trade Unions (NZCTU) has pointed out that while the reforms do make the rules for leave simpler it also reduces entitlements for so called ‘vulnerable workers’ such as part-timer workers, Māori, Pasifika and women in insecure jobs. The three biggest issues that see are:

• Less Sick Leave for Part-Time Workers: Rather than the current flat 10 days a year of sick leave that they are entitled to, part-time workers (working under 32 hours per week) could get considerably less. NZCTU President Richard Wagstaff pointed out that this cut hits low-wage and care workers hardest.

• No More Commissions or Bonuses in Holiday Pay: Some workers lose out in the changes proposed including removing commission and bonuses from holiday pay, reducing sick leave for part timers.

• No Leave Accruing While on ACC: Workers who are recovering from injuries while on ACC payments will no longer be able to build up annual or sick leave during their time off. This leads to less time off in the bank when they return which could have a knock on affect to any sidelined health issues arising from their injuries. 

Without any fine tuning the trade-offs to the simplicity offered by the new ELA could lead to widening pay gaps especially for Pacific communities. 

Businesses however are viewing the ELA as a win that ends the longer needed problem of a broken system that created headaches for payroll up and down the country in companies big and small. The new system to be based on hours and clearer OWD test should cut compliance costs, but upfront investments for updating payroll software, recalculating balances and modeling remuneration impacts loom large. 

Gaps in the Framework 

But hold on, these reforms are not yet set in stone. The draft bill, due in the first quarter of 2026, will face Select Committee scrutiny including public submissions leaving room for adjustments and changes to be made. The key areas include:

• OWD is Ambiguous:  The 50% threshold is clear, however the period remains undefined which could lead to disputes for rostered workers. 

• Equity for Vulnerable Workers: Unions will look to push for safeguards where workers will receive reduced entitlements, although no concessions are confirmed. This could lead to legal challenges from vulnerable workers who would be disproportionately impacted. 

• Remediation and Backpay: Many workers affected by the underpayments caused by the current system are still awaiting settlements. The ELA does not assist in resolving these old issues.  

• Implementation Nuances: How the new framework applies to all scenarios such as salaried overtime expectations and unpaid leave accrual, awaits guidance. It’s likely that sector specific hurdles, such as schooling's extended timelines, will face their own hurdles.

The Employment Leave Act has the potential to make leave easier for most employees, leaving behind years of confusion and underpayments. With leave now accrued hour-by-hour for employees from their first shift and payments standardised employers will be able to avoid any compliance issues that have been plaguing them for years, for the most part. Of course there are still issues within this new bill that affect the most vulnerable workers, so let's hope that as it heads back to parliament voices  from the public will join the call for the right changes to be made through submissions that can help to shape a fairer deal for all.