Employment Leave Act

Employment Leave Act: key changes to be aware of.

On 6 August 2026, the long-awaited Employment Leave Act 2026 (Act) was enacted. It will replace the existing Holidays Act 2003, following a two-year transition period, coming into force until 6 August 2028.

The transition period has been set recognising the huge changes employers and payroll providers will need to make for the new Act.

Further MBIE Guidance is coming

MBIE is working on further guidance on the transition, with timelines as follows:

• August to October 2026: payroll provider working group established and priority technical topics identified.
• November 2026 to January 2027: release of priority technical system guidance, including:

o  core calculation methodologies,

o  worked examples,

o  some complex and unusual scenarios,

o  online information sessions.

• February to April 2027: more detailed guidance on complex and unusual scenarios.
• May to July 2027 onwards: implementation support and testing guidance.

What Employers need to do

We recommend that for now, employers:

• Review current employment agreements and consider amending any references to leave entitlements under the Holidays Act 2003 to help future-proof the agreement against the upcoming legislative change.
• Wait for more specific guidance, and plan to be working on implementation in late 2027, including:

o  Identifying what the changes mean for their workforce including condering roster, and hours;

o  Updating and testing payroll systems, agreements and policies; and

o  Engaging with employees about any changes.

While the Act does allow for a further one-year grace period (until 6 August 2029) to update employment agreements, employers who rely on this extra year will need to comply with both the existing employment agreement and the new Act during that time. Where the two are inconsistent, employers must follow whichever is more favourable to the employee e.g. sick leave of 10 days for part-time employee. This creates added complexity for payroll administration. For this reason, we recommend amending employment agreements as the Act comes into force, rather than relying on the additional transition year.

What will change?

We summarise key changes, including new terminology, below.

New Term

'Standard Hours'

What is means

• Standard hours include:

o   Hours under the employment agreement that an employee is required to work and be paid for (excludes hours under availability provision);

o   Any paid breaks; and

o   Hours that would have been worked but for the employee having been on paid or unpaid leave under the Act or other legislation (such parental leave under the Parental Leave and Employment Protection Act 1987 or volunteer leave under the Volunteers Employment Protection Act 1973).

• Does include other forms of unpaid leave that are not provided for under the Act or other legislation (such as extended, discretionary unpaid leave for travel) or when receiving ACC compensation.

'Additional Hours'



• Hours that an employee works beyond their standard hours, that comes with additional pay.
• Also covers hours worked by an employee under an availability provision (where employee is obliged to work additional hours when requested by employer, but employer pays them reasonable compensation for this availability).
• Additional hours do not apply to any salaried employees who work beyond their standard hours, as compensation for this is covered by their salary.

'Casual Hours'

• The hours an employee works if the employment agreement:

o   does not require the employer to offer work; and

o   the employee is not required to accept any work offered by the employer.

'Otherwise Working Day’ (OWD)'

• A day counts as an OWD for an employee if it's a day they would ordinarily have worked, but for the public holiday, based on the days or pattern of days set out in their employment agreement.
• Where an employee's agreement doesn't specify particular working days, or where the employee typically works additional days beyond those set out in the agreement, a different test applies instead:

o   the day qualifies as an OWD if the employee worked (or was on paid or unpaid leave) on that same day of the week (e.g., Fridays) for at least 50% of the corresponding days over the previous 13 weeks, or, if employed for less than 13 weeks, over the period actually worked.

Earning and taking leave

Holidays Act 2003

Employment Leave Act 2026

Annual Leave

• Employees become entitled to four-weeks of annual leave after 12 months of continuous employment.
• Instead of becoming entitled to annual leave, employees employed on fixed-term agreements for under 12 months, or casual employees can have their annual leave paid as part of their pay.
• Annual leave calculated and taken in portions of ‘weeks’ – a ‘week’ reflects the working pattern at the time the leave is taken.
• Employees can cash up one week of annual leave in each 12-month period.

• Employees accrue annual leave from day one of employment – at a minimum rate of 0.0769 per standard hour worked.
• Once leave is earned, it is ‘banked’ and amount does not change if employee’s standard hours of work change.
• In each 12-month period, employees can request to cash up, up to 25% of their annual leave balance.



Sick Leave

• Employees become entitled to 10 days’ sick leave after six-months’ continuous employment.
• Sick leave is taken in ‘full days’ on days that are an ‘otherwise working days’.
  

• Employees accrue sick leave in hours from day one of employment – at a minimum rate of 0.0385 per standard hour of work.
• Taken in ‘hours’ against standard hours/ any hours specified in work roster at the time of the employee’s notification.

Bereavement and Family Violence Leave



• Employees become entitled to bereavement and family violence leave after six months’ continuous employment.
• Provides for such leave to be taken in ‘full days’.



• All employees (including casual employees) will be able to access bereavement leave (same entitlements) and 10 days of family violence leave from day one of employment.
• Leave can be taken in whole or part days.

Public Holiday



• Employees’ entitlement to paid public holidays (and alternative holidays) depends on whether it is an ‘otherwise working day’.
• No clear guidance on how to determine ‘otherwise working day’ if employee has irregular pattern of work.

• New otherwise working day test defined in Act, making it easier for employers to establish if a certain day for an employee with an irregular pattern of work will be deemed an ‘OWD’.



Alternative Holidays

• A full alternative holiday day is provided when an employee works a public holiday that is an OWD, regardless of the time actually worked on that day (even if less than a full day worked).
• Must be taken on another OWD and can be cashed up after 12 months.

• Employees accrue alternative leave if they work any part of a public holiday that is an otherwise working day;

o  For hours worked - employees accrue alternative leave in ‘hours’ at a rate of one hour for every hour worked, and for each part of an hour worked.

• Employees also accrue alternative leave for hours they are on call on public holidays that are otherwise working days.
• Alternative leave can be taken on any day, or part of a day, that an employee could have worked under their employment agreement. An employee can request to cash-up accrued alternative leave at any time.

Leave Payments

Holidays Act 2003

Employment Leave Act 2026

Payments for leave and non-worked public holidays



• Lots of different calculations for different types of leave, leading to payroll errors and miscalculated leave payments.
  



• One consistent calculation for all leave types (including annual leave, sick leave, bereavement leave etc.)
• ‘Fixed’ allowances paid in full during leave.
• All leave paid at an hourly rate based on an employee’s lowest hourly rate payable for the shift leave is taken, with an hourly average of piece rates.

Payments for annual leave following parental leave period

• Calculation for payment of annual leave taken after a period of parental is adjusted to a lower rate
  

• Calculation for payment of annual leave taken after a period of parental is paid as normal.
  

Leave compensation payment.

• When an employee takes leave, employers and employees must agree what ‘genuinely constitutes a working week’, taking into account the extra hours.
• Employees who work extra hours for which they receive extra pay have the pay for those hours reflected in higher leave pay at the time leave is taken.

• A leave compensation payment (LCP), set at 12.5% of an employee’s ordinary hourly rate, will be paid on all ‘additional’ and ‘casual’ hours worked (see definitions above).
• This is instead of accruing annual and sick leave on those hours.
• ·In effect, employees will only accrue annual leave in respect of their 'standard hours worked' while a 12.5% LCP will be paid on any hours worked beyond this.
• We therefore strongly encourage employers to start considering whether their employment agreements will need updating to more accurately reflect employees' ‘standard hours of work’.

Other key changes

Holidays Act 2003

Employment Leave Act 2026

Casual employment



• Employers and employees can agree to use “Pay as you go” (8% of gross earnings each pay period) instead of paid annual leave.
• For sick leave, many casual employees do, technically, become entitled to sick leave – although they are unlikely to benefit from this entitlement in practice due to impracticality and compliance issues.

• Leave compensation payment (LCP) (set at a rate of 12.5% of an employee’s ordinary hourly rate) will be paid for each casual hour of work in every pay period, instead of that work accruing annual and sick leave.



Fixed-term employment

• If employed on fixed-term basis for under 12 months, can agree to use 8% pay-as-you-go for annual leave on same basis as casual employees.
• If the fixed term is for less than 6 months, the employee does not receive any sick leave entitlements.

• All fixed-term employees who have ‘standard hours’ will accrue annual and sick leave from the first day of employment.
• Fixed term employees who work casual hours will receive leave compensation payment instead of accruing annual leave and sick leave for those casual hours.
• All fixed term employees will also have access to bereavement and family violence leave from the first day of employment.

Employees with multiple roles under one employer

• Does not provide clarity on how provisions apply when employees have multiple roles with the same employer.

• If an employee has two or more roles under one employer which each have standard hours (under one or separate employment agreements) the employee and employer may agree in writing how the roles be treated for the purposes of leave entitlements and payments. 

Pay statements

• No legal requirement for employers to provide pay statements to their employees, unless specifically requested by employee.

• Employers are now required to provide a pay statement to an employee for each pay period.
• These pay statements must include the employees’ leave entitlements (such as annual leave and sick leave).
• Family violence leave entitlements must not be provided.

Leave entitlements in restructuring situations



• If employment changes due to a restructure (where original business is sold to a new employer, employees transfer over), the original employer is required to pay out the employee their leave entitlements, and these entitlements reset under the new employer. 



• Employee protection provision in employment agreements must specify a process regarding transfer of leave entitlements.
• Employee’s original employer may negotiate with their new employer for their untaken annual leave and alternative holidays to be transferred to their new employment, instead of being paid out.

You can also read more about the Employment Leave Act 2026 in our previous articles: 

Devil is in the Detail - Holidays Act Reform 

Workplace Law 101: What Employers need to know in 2026 

Employment Leave Bill: Summary of Select Committee Amendments 

Our team can assist with helping you understand the changes, educate your employees on the changes, assist with your leave compliance, including updating employment agreements and policies, as well as assisting with employee communications around the changes once they are implemented.



Disclaimer: We remind you that while this article provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.