On 23 September 2025, the Government announced its updated approach to amending the Holidays Act 2003 (the Act), to make the rules surrounding leave straightforward and easier to understand. The proposed reforms are currently being drafted in the Employment Leave Bill (the Bill) and aim to address long-standing issues with calculating leave entitlements and payments, deliver simplicity for employers, and provide transparency for employees.
Background
The Act has been a source of continual compliance challenges for New Zealand employers, particularly in industries with variable or non-traditional work patterns. This has led to costly remediation across both public and private sectors, highlighted most notably by significant settlements within the health sector.
Numerous reviews since 2001 have emphasised the complexity of the Act’s provisions for annual leave, sick leave, and other entitlements. In response, the previous Government established the Holidays Act Taskforce in 2018, and after several years of policy work and consultation, broad reforms are now imminent. The new legislation is expected to come into force following a 24-month implementation period after the Bill passes.
Proposed changes
Accrual of annual leave and sick leave
At present, annual leave is granted as a lump sum after 12 months’ continuous service and sick leave after six months’ continuous service, with a new entitlement arising every 12 months. Annual leave also scales to match changes in an employee's weekly hours of work.
Instead, it is proposed that annual leave and sick leave will accrue from the first day of employment (including for fixed-term employees), proportionate to actual contracted hours worked. Annual leave will also be accrued and ‘banked’ in hours, directly correlating to actual hours worked and sick leave accrual will be capped.
Use of annual leave and sick leave
Under the current Act annual leave can be taken in portions of weeks and sick leave can only be taken in full days. Up to one week of annual leave can also be cashed up.
These changes will allow for annual leave and sick leave to be taken in hours to take part days off work. Where an employee does not work specific days or hours, a notional roster will be used. Employees will also be able to request to cash up 25% of their annual leave balance.
“Pay-as-you-go” for casuals
Currently “pay as you go” holiday pay (8%) is permitted for casual employees, but not required, and sick leave has minimum requirements and is difficult to apply to casual employees. In contrast, the proposal provides that casual employees or those with no contracted hours will receive a 12.5% leave compensation payment on all earnings, in lieu of accruing standard annual and sick leave.
Extra hours
Any extra hours waged employees currently work are accounted for in higher leave pay when leave is taken. Some salaried employees may earn additional pay when working additional hours, which is also accounted for in their leave pay. Instead, the changes will allow for waged employees and salaried employees that earn additional pay when working additional hours, to receive a 12.5% leave compensation payment for the additional hours worked.
Leave during non-worked periods
The Act lets annual leave accrue during a wide range of paid and some unpaid absences such as when an employee is receiving ACC or during the first week of unpaid leave.
It is proposed that annual leave and sick leave accrues when an employee is on paid leave or statutory absences (including parental, jury and volunteers leave) but not while receiving ACC and not working, or during unpaid leave.
Simplified leave payment calculations
Presently, leave calculations vary across leave types and are complex. Under the changes, a unified hourly leave pay rate will be used for all leave types in the form of the worker’s base wage for the day of leave, with fixed allowances included.
Expanded access and use of bereavement and family violence leave
Under the Act, minimum service periods apply to bereavement and family violence leave and those leave types can only be taken in weeks or days. The proposed changes will make these leave types accessible from day one (including for fixed-term employees) and allow them to be taken in part-days.
Parental leave
Currently if an employee takes annual leave following parental leave it will be calculated based on the rate of their average weekly earnings for the preceding 12 months. This would change under the new legislation as it is proposed that any annual leave taken following parental leave will be paid like standard leave.
Public holidays
Under the current Act, entitlement to paid public holidays is based on an “otherwise working day” assessment. Employees also receive a whole alternative holiday and get paid time and a half for the hours they work.
Under the proposal, if an employee has worked 50% or more of the relevant days previously, the public holiday is deemed a working day for entitlement purposes. Additionally, alternative holidays will be accrued based on the hours worked on the public holiday, time and a half will be received for the hours actually worked and leave pay will be received for any contracted hours not worked.
Mandatory pay statements
Lastly, there is no requirement to provide pay statements unless an employee makes a request. Instead, the changes will require pay statements to be provided each pay period, with enough information for an employee to determine whether their leave has been calculated correctly, improving transparency for employees.
Implications for businesses
Though the Act rules remain in force for now, the proposed reforms are expected to deliver the clarity, certainty, and fairness that have eluded the current legislation.
Regardless of how these changes will be implemented, they will necessitate significant shifts in how employers operate. The 24-month transition period is designed to give employers and payroll providers time to prepare for these substantial shifts, but careful planning and obtaining legal advice will be essential to ensure compliance.
It will be important for employers and employees to consider how these proposed changes may impact them and their workplace. The public and interested parties will have the opportunity to provide feedback at the Select Committee stage once the Bill is open for submissions. We will keep you updated as the Bill progresses.
For more information and advice about managing the changes ahead or providing feedback to the Select Committee, please contact a member of our employment team.
Co-authored by Gianna Menzies (solicitor).
