This describes the new Employment Leave Bill, not the rules that apply today. This comes into force on 6th August 2028. Until it comes into force, the current Holidays Act 2003 still governs all leave (see our current leave articles).
New Zealand is replacing the Holidays Act 2003 with a new leave framework. The goal is a system that's simpler and clearer, so employers and workers have more certainty about entitlements and obligations.
Why it's changing
Employers have long struggled to apply the Holidays Act 2003 correctly, which has led to widespread non-compliance across both the public and private sectors. That's meant many employees haven't received the leave and pay they were entitled to, and errors have been costly to fix.
The big changes
Annual leave and sick leave will accrue in hours, from day one of employment
One hourly leave rate will replace the current mix of calculations (average weekly earnings, ordinary weekly pay, relevant daily pay and average daily pay)
A new Leave Compensation Payment (LCP) of 12.5% will be paid on casual and additional hours, instead of those hours accruing leave
A clearer Otherwise Working Day (OWD) test for public holidays. An agreed calculation method for determining what an OWD will be available
Alternative holidays will accrue in hours (for each hour worked on a public holiday)
Bereavement and Family Violence leave can be taken from day one of employment
Pay statements will become mandatory every pay period
Timeline and implementation
Once the Bill receives Royal assent, there's a 24 month period before it comes into force. This gives payroll providers and employers time to make changes to business and payroll systems. All parts of the new legislation are proposed to come into force at the same time, 24 months after Royal assent - there's no ability to adopt the changes earlier. It is expected that this will commence in 2028, but the exact date is to be confirmed.
Until then, current rules apply. Until the Holidays Act is repealed and the new Act comes into force, all existing rules still apply. You still need to comply with the current Holidays Act and provide the correct current entitlements and payments.
Implementation in PaySauce
PaySauce will be updated to reflect the new rules that come into effect (2028). The PaySauce team has been working on a redesigned product which is being released soon and rolled out to customers in stages. That product contains a new, significantly redesigned payroll rules engine which makes it the most modern and up to date payroll system in the New Zealand market. We have already accounted for the incoming changes in that new product, and have made product decisions which are designed to help employers transition more easily when the time comes.
Annual leave
Annual leave will be in hours from day one of employment, will be "banked" every period, and will be taken in hours.
Currently, employees get a four week lump sum of annual leave added to their balance after each 12 months of continuous employment, leave is held in weeks, and a "week" scales with the person's work pattern. Under the new system, annual leave will accrue continuously in hours from the first day of employment at a minimum of 0.0769 hours for every standard hour worked. For an employee whose standard hours don't change over a year, that's the equivalent of four weeks' leave.
Accrued annual leave hours will be "banked" as they are earned, so balances will reflect standard hours actually worked in the past and don't adjust when a work pattern changes. An hour of annual leave will keep its value regardless of later changes in hours.
Current annual leave system | New annual leave system |
Currently, annual leave is provided to all employees as a 4 week entitlement after each 12 months’ ‘continuous employment’ (unless pay-as-you-go applies). | Annual leave will accrue in hours from day one at a minimum rate of 0.0769 per standard hour of work. |
A ‘week’ of annual leave must reflect the employee's work pattern when leave is taken. Leave balances must change if needed to match changes in hours. | Annual leave hours will be banked and earned immediately with no balance adjustment if the standard hours change. I.e. the leave accrued becomes entitled every period, there is no anniversary date. |
Annual leave is still earned while on some types of unpaid leave (unpaid sick, bereavement, ACC, parental leave, etc). During other periods of unpaid leave annual leave may not be earned (the anniversary may move). | Annual leave will accrue when a worker is on paid or unpaid leave under any legislation (including parental, volunteers and jury leave). Does not accrue on any other unpaid leave or on ACC. |
Annual leave is taken in agreed portions of weeks. | Annual leave will be taken in hours against the employee's standard hours. |
Employees can request to cash up 1 week (of entitled leave only) in each 12 months. | In each 12 month period employees can request to cash up up to 25% of their annual leave balance, as at their last start date anniversary. |
Sick leave
Sick leave accrues in hours from day one, up to a 160 hour cap, and can be taken in part days.
Currently, eligible workers get a 10 day lump sum after six months, and again after every subsequent 12 months, taken in full days. Under the new system, sick leave accrues continuously in hours from the first day of employment.
Sick leave will accrue at a minimum of 0.0385 hours for every standard hour worked, and during the same unworked periods as annual leave. For someone working five days a week with the same hours each day, that's the equivalent of 10 days a year. There will be a cap of 160 hours: once hit, new accrual stops until the employee has used some of their stored sick leave.
Current sick leave system | New sick leave system |
All eligible workers receive a 10 day lump sum entitlement (up to a 20 day cap) after 6 months and after every subsequent 12 months. | Accrues in hours from day one at a minimum rate of 0.0385 per standard hour of work and during the same unworked periods as annual leave (up to a 160 hour cap). |
Taken in full days on a day that is an ‘Otherwise Working Day’ for the employee. | Will be taken in hours against the employee's standard hours and any hours specified in a work roster at the time the employee notifies they are sick. |
Bereavement and Family Violence Leave
Current entitlements | New entitlements |
For eligible employees entitlements apply after 6 months. | Apply from day one for all employees. |
Stated as being taken in full days, but many employers choose to allow part days. | Explicitly stated as being able to take part days. |
Public Holidays and Alternative Public Holidays
Current entitlements | New entitlements |
Entitlements to paid days off work and alternative holidays apply on Otherwise Working Days (OWD). Employers and workers must consider a range of factors when it it is not clear how to determine if it was an Otherwise Working Day. | A new OWD calculation test will be available for employees without agreed days (or a pattern of days) of work in their employment agreement and/or employees who work on additional days. A day will be treated as an OWD if 50% or more of the same day of the week as the public holiday have been worked in the preceding 13 weeks. |
A whole alternative holiday day provided when an employee works on a public holiday that is an OWD, regardless of the time actually worked on that day. | Alternative leave accrues in hours at a rate of 1:1 for every hour worked (or on call) on a public holiday that is an OWD. |
An alternative public holiday can only be taken on another OWD and can only be cashed up after 12 months. | Alternative public holidays will be able to be taken in hours on any day that a worker could work under their employment agreement and can be cashed up at any time (no 12 month wait). |
Leave payments
One hourly leave rate will be used for all leave types, replacing the current mix of average weekly earnings, ordinary weekly pay, relevant daily pay and average daily pay.
The same hourly leave pay rate applies to annual leave, sick leave, bereavement leave, family violence leave, non-worked public holidays and alternative leave.
How the rate is set:
Waged workers: the lowest hourly rate payable under the employment agreement for the day the leave is taken from (a part-year worker taking leave in a non-worked period is an exception).
Salaried workers (other than an averaged salary employee): the salary attributable to one standard hour of work (including any availability-provision compensation included in their salary).
Averaged salary employees (ASEs): the salary paid in a pay period divided by the standard hours in that period - so the hourly leave rate can vary between pay periods, but the salary received doesn't.
Piece-rate workers: their leave hourly rate plus an hourly average of piece wages.
Minimum floor: workers paid wholly or partly by piece work or commission whose leave rate would be lower must be paid no less than the minimum wage for each hour of leave.
Current entitlements | New entitlements |
Multiple calculations and comparisons to reflect pay for non standard hours and other variable payments. | All leave will be paid at an hourly rate based on a employee's lowest hourly rate payable for the shift leave is taken, with an hourly average for piece rates.
'Fixed’ allowances paid in full during leave. |
Employers and employees can agree to use “Pay as you go” (8% of gross earnings) instead of providing paid annual leave if work is intermittent or irregular or for a fixed term of less than 12 months. | A leave compensation payment (LCP) will be paid at 12.5% of an employee's normal hourly rate for all ‘casual’ hours of work or for ‘additional’ hours they work over their standard hours. |
Treatment of allowances and other payments
"Fixed" allowances are paid in full during leave, like normal - this is on top of the leave hourly rate, which doesn't itself include allowances. A fixed allowance is one that, under the agreement, the employer must pay and that doesn't vary in value; the exception is allowances that reimburse expenses the employee incurs while working but not while on leave (for example, a mileage or meal allowance).
Allowances payable/earned in relation to specific work done will not be included. Bonuses, commissions and variable allowances (such as for ad hoc special duties) will not be included in the hourly leave rate.