Employment Leave Act 2026

By Dawn Grant

Viewing the Employment Leave Act 2026 purely as a payroll software patch is an expensive mistake for leadership. Some organisations may see the Employment Leave Act 2026 as something their payroll team and payroll software provider will simply “take care of”, and that it will work as expected on day one.

Payroll has a significant role. But successful implementation starts well before the pay run and continues after it. The effect is wider than payroll.

The ripple effect begins with HR and recruitment

HR and recruitment need to ensure employment arrangements provide a clear basis for identifying standard hours. Where an employee works standard hours but their employment agreement does not provide the detail needed for leave calculations, the employer and employee must agree to a written notional roster.

It is not only an onboarding task. These arrangements need to stay current as working patterns change, so they should be monitored throughout the employee life cycle, with a variance created if required. HR should help coordinate this with employees and operational managers.

Time and attendance: Distinguishing standard, additional, and casual hours

Organisations need reliable processes and systems to distinguish standard, additional, and casual hours using the Act’s definitions. Time capture, rostering, and payroll need to work together so that payroll receives the information required about standard or notional rosters and additional hours or casual hours to apply the correct treatment.

Payroll requires clear, categorised data to know exactly which category each hour falls into. This matters deeply for compliance:

• Leave accruals apply to standard hours, but do not apply to additional hours.
• Leave compensation payments: Casual hours and hours meeting the Act’s definition of additional hours.
• Payment calculation: The minimum payment is 12.5% of the employee’s ordinary hourly rate for each qualifying hour. Where qualifying hours are paid at an overtime rate, the minimum leave compensation payment is based on the ordinary hourly rate.

Correctly capturing, identifying, and separating these hours upfront is therefore essential.

Payroll Applies the Legislation Using Accurate Employment and Time Data

Payroll does more than pay for the hours worked. Leave accruals, leave payments and leave compensation payments depend on receiving the correct data. Payroll configuration matters, but so do interfaces, approval processes and the quality of the information supplied.

For budgeting and financial reporting, organisations will need clear visibility of:

• standard-hours costs
• additional-hours costs
• costs associated with leave compensation payments

Leave liability reporting also needs to reflect the new accrual rules and the transition of existing balances.

Looking ahead to August 2028

Every organisation should review the complete flow: employment arrangements, rostering, time capture, payroll processing and financial reporting. Systems may need configuration changes, interfaces may need redesign, and people will need training.

These changes need a coordinated implementation plan, with testing that follows an employee’s data through the entire process.

• Contracts and rosters: Employment arrangements provide sufficient detail to identify standard hours for leave purposes, supported by an agreed written notional roster where required.
• Time capture: Standard, additional and casual hours correctly identified, with the information passed accurately to payroll.
• Payroll processing: Annual and sick leave accrual calculated using standard hours, including qualifying absences, and leave compensation payments applied to qualifying additional and casual hours.
• Financial reporting: standard-hours, additional-hours and leave compensation costs visible, and leave liability reporting updated for the new accrual rules and the transition of balances.
• Records and auditability: Required leave, hours and payment records retained, with a clear trail showing how classifications, accruals, payments and transitioned balances were determined.

The Act’s main commencement date is 6 August 2028. For existing employees, the transition provisions link entitlement and payment requirements to the first pay period starting on or after that date. That makes alignment across different systems essential.

Until the new rules apply, employers must continue to meet their obligations under the Holidays Act 2003.

Organisations should appoint a shared implementation team now, with HR, operations, time and attendance, payroll, finance and IT represented, to get these provisions reviewed and acted on across all relevant software platforms well ahead of the 2028 commencement date. It may seem a long way away, but there is a lot to consider before we get there.

What is your organisation doing to bring these elements together within your systems to meet the requirements of the Employment Leave Act?