Holidays Act Update

Wednesday 24 September, 2025

The Minister of Workplace Relations has announced an overhaul of the Holidays Act 2003 (‘Current Act’). The Current Act has proven problematic, with virtually all employers having aspects of its calculations wrong at some time. This has led to widespread non-compliance. The Government intends to replace the Current Act with a new Employment Leave Act (‘New Act’).

Key Changes

Hours-based accrual system

The most significant change is moving from a weeks-based accrual of annual holidays to an hours-based system:

• Annual leave: Employees will earn leave from day one at a rate of 0.0769 hours per contracted hour worked. This provides the same four-week entitlement for a full-time employee as under the Current Act. Leave will not accrue while an employee is on most unpaid leave (except jury service and volunteer leave) or while receiving ACC weekly compensation.
• Sick leave: Accrues at 0.0385 hours per contracted hour (capped at 160 hours). This equates to the same 10-day entitlement for a full-time employee. Part-time employees’ entitlements will reduce under the New Act due to this pro-rata approach.
• Leave balances: All leave will be “banked” in hours. This means balances won’t automatically scale up or down if working patterns change.
• Access: Employees will have access to their annual holiday and sick leave entitlements from day one.
• Other leave types: Bereavement and family violence leave will also accrue from day one. These will remain days-based but can be taken in part-days.

Leave Compensation Payment

A new 12.5% Leave Compensation Payment will apply to:

• Additional hours worked by permanent employees beyond their contracted hours.
• All hours worked by casual employees.

This replaces the current Pay-As-You-Go (PAYG) system.

The 12.5% rate is higher than the Current Act’s 8% for casuals, as it also compensates them for sick leave.

Importantly, this payment replaces leave accrual on overtime. 

Simplified leave payments

All leave will be calculated based on base remuneration plus fixed allowances.

Variable pay components (commissions, bonuses, overtime) will no longer be included, which may reduce leave payments for some employees.

Remediation process

A new statutory estimation process will apply to remediation claims under the Current Act.

What this means for employers

The new system is intended to:

• Reduce errors.
• Save time.
• Lower compliance costs.

Financial impact:

• Costs for casual employment are likely to rise.
• These increases may be offset by reduced sick leave costs for permanent staff.
• Employers with workforces on regular, contracted hours will benefit from the simplicity of the new framework.
• Employers with many casual staff or employees working significant additional hours could see leave costs increase.

Timeline and implementation

A draft Bill has yet to be prepared. It will go through the Select Committee process, with public consultation.

The Minister expects the New Act to be passed in the current parliamentary term.

Employers will then have 24 months to update and implement payroll and leave systems.

Next steps for employers

In the meantime, we recommend employers:

• Review current leave policies and practices.
• Assess potential financial impacts based on workforce composition.
• Begin planning for payroll system updates.
• Address any outstanding compliance issues under the Current Act.

We will continue to monitor developments and provide updates as the legislation progresses through Parliament. Please contact us if you have specific questions about how these changes may affect your organisation.

If you have any questions relating to this article, please get in touch with one of our experts listed below.