New Zealand's Leave Laws Are Getting a Major Overhaul

Thursday 19 March, 2026

Update: 

On 29 July 2026, the long-awaited replacement of the Holidays Act 2003 (the Act), the Employment Leave Bill (the Bill), passed its third reading in Parliament. Read more on this development.

If you employ staff in New Zealand, your leave obligations are about to change significantly. The Government has introduced the Employment Leave Bill. It contains the most far-reaching reform of employment leave law in over 20 years. For employers, this means new rules on how leave accrues, how it is paid, and how employment agreements must be updated. The Bill aims to replace the current legislation with a clearer, more consistent framework.

There is time to prepare, but that preparation should start now. 

Major Changes and New Entitlements

The Bill replaces the current leave model with a framework built around three distinct categories of hours, which then determines how leave accrues and how it is paid. 

The three categories are:

• Standard hours — the regular, agreed hours under the applicable employment agreement. Annual leave and sick leave accrue on these hours.

• Additional hours — hours worked beyond an employee's regular agreed hours — such as overtime or extra agreed shifts. Employees do not accrue annual or sick leave on these hours. Instead, they must receive a leave compensation payment (LCP). This must be at least 12.5% of their ordinary hourly rate and must be paid every pay period.

• Casual hours — hours worked under a genuinely casual arrangement. An LCP also applies to casual hours and must be paid every pay period. It is in addition to other pay and must be shown as a distinct component in leave records.

An employee’s leave accrual is determined by what categories above their hours fall into. 

Annual Leave: Accrual Starts from Day One

Employees will begin accruing annual leave from their very first day of work at a minimum of 0.0769 hours per standard hour worked. 

Annual leave accrues on standard hours only. Hours worked as overtime or under a casual arrangement are treated differently. 

If an employee's regular hours change, their existing annual leave balance is not recalculated — it stays the same.

Sick Leave: A New Cap and Broader Access

Sick leave also accrues from day one of employment at a minimum rate of 0.0385 hours per standard hour worked. It builds up continuously, to a maximum of 160 hours — approximately 20 working days.

Sick leave applies to employees with regular or mixed hours. Purely casual employees do not accrue sick leave.

Public Holidays: New "Otherwise Working Day" Test

For employees whose agreements do not specify days or patterns of work, a new "otherwise working day" (OWD) test applies. The test looks back at the past 13 weeks. If the employee worked — or was on leave — on the same day of the week as the public holiday more than half the time, that day counts as a day they would normally have worked. 

Modifications apply if the employee has been on parental leave, volunteer leave, or ACC leave during that period.

Employers must notify employees whether a public holiday is treated as an OWD and the hours they would have worked, as soon as practicable. This notification may be made via the pay statement.

Bereavement and Family Violence Leave 

The entitlement to bereavement or family violence leave also arises from the first day of employment and remains day based. 

Alternative Leave

Alternative leave accrues at 1 hour for each hour worked on a public holiday that is an OWD, including certain on-call situations.

When Do These Changes Take Effect?

The Bill, when passed, will commence two years after it receives Royal assent. This will apply to all employees apart from those in the state schooling sector, where it will commence 10 years after Royal Assent. 

Employers will not need to comply until the start of an employee's first pay period after commencement. One year later, employment agreements must be updated. Legacy Holidays Act balances will need to be converted under transition arrangements set out in the Bill. 

What Employers Should Do Now

The Bill has passed its first reading - do not wait for Royal assent before beginning to prepare, as the volume of internal work required is substantial.

Key Takeaways

• Leave will accrue from day one for all employees with regular hours.
• Overtime and casual hours will be compensated differently — through an LCP, not traditional leave accrual.
• Employment agreements and payroll systems will need to be updated before the law comes into force.
• Most employers have a two-year window once the Bill passes — but preparation should begin now.

Our employment team can help you assess how the Bill will affect your workforce, ensure your payroll system is ready and offer further guidance. Get in touch with one of our experts below.