Employment Leave Act 2026 What Employers Need to Know
The Holidays Act 2003 has been difficult for many New Zealand employers to apply, especially where staff work changing hours, shifts, casual patterns, or seasonal roles. The new Employment Leave Act 2026 is designed to reset those rules, but it does not apply straight away.
The Act has passed into law and will replace the Holidays Act 2003 from 6 August 2028. Until then, employers must keep using the current Holidays Act rules. The new system cannot be adopted early.
That timing matters. Businesses have roughly two years to prepare before the change applies to their first pay period on or after 6 August 2028.
Leave will move from weeks and days to hours
The biggest change is how leave builds up.
Under the current Holidays Act system, annual leave is generally provided as a four-week entitlement after 12 months of employment. Sick leave is generally provided as a 10-day entitlement after six months.
From 2028, annual leave and sick leave will build up progressively from day one, based on the hours an employee actually works.
That means leave no longer arrives in one large block after a waiting period. Instead, employees earn it as they work.
For most full-time employees with regular hours, the end result should feel familiar. A person working standard full-time hours should still build up the equivalent of four weeks’ annual leave and 10 days’ sick leave over a year.
The difference is timing and calculation.
Under the new system:
Annual leave accrues at 0.0769 hours for every hour worked
Sick leave accrues at 0.0385 hours for every hour worked
Annual leave is capped at 160 hours, once built up, which is the equivalent of four weeks for a standard full-time employee
For staff with irregular hours, this is a significant shift. Instead of asking what a “week” of leave means for someone whose hours change, the entitlement can be linked directly to the hours actually worked.
Why this matters for changing work patterns
Many SMEs do not have a perfectly regular workforce. Hours can move around because of customer demand, weather, school holidays, production deadlines, rosters, or seasonal peaks.
The current Act can be hard to apply in those situations. One employee may work three short shifts one week and six long shifts the next. Another may move between part-time and full-time hours. A third may be engaged for only a short seasonal period.
An hours-based system should make those situations easier to calculate. It connects leave entitlement to actual work performed, rather than trying to translate everything back to weeks or days.
That does not mean payroll will become automatic overnight. Employers will still need accurate time records, clear employment arrangements, and payroll systems that can handle the new accrual rules correctly.
Casual and seasonal workers need special attention
The change is especially relevant for businesses that rely on casual or seasonal labour, including agriculture, horticulture, hospitality, tourism, events, and short-run production work.
Under the current Holidays Act, employers and casual employees can agree to a “Pay As You Go” arrangement for annual holidays in limited circumstances. That usually means paying 8% of gross earnings each pay period instead of the employee building up annual leave in the usual way.
The new Act changes the overall leave framework by moving annual leave and sick leave to hours-based accrual from day one. For casual and seasonal workforces, that makes preparation more important, not less.
Employers should review:
Which workers are genuinely casual
Which roles are seasonal but predictable
How hours are recorded
How leave balances are shown on payslips or in payroll portals
Whether employment agreements will need updating before 2028
This is also a good time to check whether current arrangements match reality. If a “casual” employee works regular shifts over a long period, the label may not reflect the working relationship.
The Act cannot be adopted early
One of the easiest mistakes would be changing too soon.
The new rules apply from 6 August 2028, and businesses must keep following the Holidays Act 2003 until the changeover date. Employers cannot choose to apply the new accrual rates early because they seem easier or fairer.
The practical rule is:
Keep using the current Holidays Act until the first pay period on or after 6 August 2028, then move to the new Act when it applies.
That gives payroll providers, advisers, and employers time to prepare. It also means there will be a transition period where systems, contracts, policies, and stored leave balances all need careful handling.
The phrase to remember is: Comes into effect 6 August 2028 - things you need to know are not just legal dates, but payroll readiness, record accuracy, and clear communication with staff.
What employers can do now
There is no need to change leave calculations yet. There is a real need to get ready.
A sensible preparation plan includes four steps.
Check payroll capability
Payroll systems will need to calculate annual leave and sick leave in hours, based on hours worked. Ask payroll providers when they expect their systems to be ready and what information employers will need to supply.
Do not leave this conversation until mid-2028.
Improve time and attendance records
Hours-based accrual depends on accurate hours. That includes ordinary hours, variable hours, and any work patterns that change from week to week.
If timesheets are inconsistent, late, or manually adjusted without a clear record, the new system may expose those weaknesses.
Review employment agreements and policies
Leave clauses in employment agreements, staff handbooks, and onboarding material may refer to weeks, days, waiting periods, or Pay As You Go arrangements. These documents may need updates before the new Act applies.
The wording should match the law in force at the time. For now, that means the Holidays Act 2003.
Plan staff communication
Employees will want to know whether they are losing leave, gaining leave, or seeing a timing change. For most regular full-time employees, the annual result should be broadly similar. The main change is that leave builds up progressively in hours.
Clear communication will reduce confusion when payslips and leave balances start looking different.
What should not change yet
Until 6 August 2028, employers should avoid:
Switching annual leave accrual to the new hourly rate
Switching sick leave accrual to the new hourly rate
Rewriting payroll settings as if the new Act already applies
Telling employees the new entitlements are already available
Removing current Holidays Act obligations early
The safest approach is to prepare in the background while continuing to comply with the current law.
The key takeaway
The Employment Leave Act 2026 is a major shift in how leave is calculated, not a reason to change payroll immediately.
For SMEs, the priority is simple: keep following the Holidays Act 2003 for now, then use the lead-in time to prepare records, payroll systems, contracts, and staff communication.
By the time the new Act applies from 6 August 2028, the businesses in the best position will be the ones that already know how many hours their people work, how those hours are captured, and how leave will accrue from the first pay period under the new rules.
This article is general information only and is not legal advice. Employers should get advice for their specific circumstances before making changes to employment agreements or payroll settings.
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