Parliament has passed the Employment Leave Bill, which will repeal and replace the Holidays Act 2003 and substantially change the way annual leave, sick leave, alternative leave and public-holiday entitlements are calculated.
The present Holidays Act has long created difficulties for employers, particularly where employees work irregular or changing hours. The new legislation is intended to replace many of those complex calculations with an hours-based system.
As at 31 July 2026, the Bill has passed its third reading but is awaiting Royal assent. Most of the new provisions will come into force two years after Royal assent. Until then, the Holidays Act 2003 continues to apply. New Zealand Parliament — progress of the Bill
Annual leave from the first day of employment
Employees working standard hours will accrue annual leave from their first day of employment, rather than becoming entitled to four weeks’ leave after completing 12 months.
Annual leave will accrue at a minimum rate of 0.0769 hours for every standard hour worked. This is broadly equivalent to four weeks’ annual leave each year for an employee whose hours remain consistent.
Because leave will be recorded in hours, an employee’s existing balance will not increase or decrease merely because the employee later changes their working hours.
Employees may request to cash up as much as 25% of the annual leave held at their employment anniversary. This replaces the present limit of one week each year. However, the employer still has the right to determine whether annual leave can be cashed out or not in accordance with their own policies and procedures.
Sick leave will also accrue in hours
Sick leave will accrue from the first day of employment at a minimum rate of 0.0385 hours for every standard hour worked, subject to a statutory accumulation cap of 160 hours.
This is a significant change for part-time employees. Under the present legislation, an eligible employee generally receives 10 days’ sick leave each year regardless of whether they work two days or five days a week. Under the new system, sick leave will be proportionate to the employee’s standard hours.
Employees will be able to take sick leave in hours rather than necessarily using a whole day’s entitlement.
Casual and additional hours
Employees working casual hours will not accrue annual or sick leave for those hours. Instead, they will receive a separate leave compensation payment of at least 12.5% of their ordinary hourly rate.
The same payment will generally apply to additional hours worked by an employee outside their standard hours. The payment must be separately identified in the employer’s leave records.
Public holidays and alternative leave
The familiar requirement to pay employees at least time-and-a-half for working on a public holiday will remain.
However, alternative leave—commonly called a “day in lieu”—will accrue in hours. Where a public holiday is an otherwise working day, an employee will generally accrue one hour of alternative leave for every hour worked on that holiday, rather than automatically receiving a whole alternative day.
The legislation also introduces more detailed rules for determining an employee’s standard hours, whether a public holiday is an otherwise working day, and the treatment of employees whose work patterns vary.
What employers should do now
There is no immediate change to employees’ leave entitlements. Employers must continue complying with the Holidays Act 2003 during the two-year implementation period.
Nevertheless, employers should use that period to:
- confirm that their payroll provider will support the new hours-based system;
- review how standard, additional and casual hours are identified;
- prepare to convert existing leave balances into hours;
- review employment agreements, leave policies and record-keeping processes; and
- budget for the 12.5% leave compensation payment applying to casual and additional hours
The reform should ultimately make leave calculations more predictable, but the transition will require careful planning. In particular, employers with variable rosters, multiple employee roles or a mixture of standard and casual hours should obtain advice well before the commencement date.