Breaking news: The Holidays Act to be replaced by the Employment Leave Act

What Was Announced

The Cabinet has confirmed several key pillars of the proposed Employment Leave Act (The Beehive):

• Annual leave will accrue in hours from day one, at 0.0769 of each contracted hour worked (4/52).
• Leave will be “banked” in hours, with no adjustments if contracted hours later change.
• Employees will be able to cash up 25% of their total annual leave balance each year.
• Sick leave will also accrue in hours from day one at 0.0385 of each contracted hour (2/52).
• Bereavement leave and family violence leave will remain measured in days but available from day one.
• A new Otherwise Working Day (OWD) test will help determine whether a public holiday falls on an employee’s expected working day.
• Alternative holidays will accrue in hours, on a one-for-one basis, with each public holiday hour worked.
• All leave will be paid at an hourly leave pay rate, based on base wages.
• Fixed allowances will be paid in full during leave. 
• Annual leave taken after parental leave will be paid as normal, removing the need for a 52-week averaging test.
• Casual workers and employees working additional hours will be entitled to a 12.5% leave compensation payment on top of wages, rather than accruing additional leave.

The Minister has confirmed the goal to pass the Act within this parliamentary term remains on track, with a 24-month implementation period after passage (The Beehive).

Where Things Stand

We are currently at the post-Cabinet policy decision stage. The Bill has not yet been introduced to Parliament. MBIE’s update confirms Cabinet’s decisions and notes the Bill will now be drafted and then introduced, triggering the official Select Committee process (MBIE).

1. First reading
2. Select Committee review (typically six months, with opportunities for public submissions)
3. Second reading
4. Committee of the Whole House
5. Third reading
6. Royal assent

If introduced in the coming months and given a normal Select Committee timeframe, mid–late 2026 is the earliest realistic passage date (The Beehive, MBIE). The Act would then have a 24-month implementation window, meaning practical go-live for most sectors in 2028.

The schooling sector will have up to 10 years to transition, given the complexity of its centralised payroll system (The Beehive).

Why This Matters

Replacing the Holidays Act isn’t just a technical change,  it will reshape how businesses manage leave and how employees access their entitlements.

Employers and payroll providers have long struggled with the Holidays Act, particularly with variable-hour and casual workers. These complexities have led to widespread remediation programmes, with many businesses still correcting errors today.

The proposed hours-based system aims to:

• Make entitlements easier to calculate and administer
• Reduce payroll disputes
• Ensure greater fairness for employees
• Simplify compliance for employers

Some of the main risks for employers include:

• The need to adapt payroll systems to handle new accrual rules
• Possible increase in liabilities and costs
• Updating employment agreements
• Re-training payroll and HR teams

The Government has signaled a 24-month implementation period to give organisations time to adapt (The Beehive).

Will the Employment Leave Act really happen?

It’s natural to be sceptical. Past reviews, including one in 2023–2024, failed to deliver change. But this time momentum looks stronger:

• The Bill is Government-backed and supported by the coalition (The Beehive).
• The governing parties hold a working majority in Parliament, making passage highly likely.
• The Act’s simplification focus makes it easier to defend politically.

That said, risks remain:

• Select Committee scrutiny could alter details.
• Timing is tight – failure to pass before the next election could stall progress.
• Future Governments may amend or reprioritise.

Initial reporting suggests debate will centre on issues like hours-based sick leave and the 12.5% compensation payment (NZ Herald). But overall, the core direction is Government-led and positioned as simplification.

What Business Should Do Now

The Holidays Act 2003 remains in force. Nothing has legally changed yet, and no new rules apply until the proposed Employment Leave Act is introduced, debated, passed, and then given effect after a transition period. That process will take time, and final details may still shift.

However, employers should stay proactive so they’re not caught off guard. The following steps can help organisations prepare in the coming months:

1. Monitor official updates

• Keep an eye on the Legislation website for the introduction of the Employment Leave Bill.
• The Bill’s introduction will trigger the official Select Committee process with public submissions.
• MBIE will also publish guidance and timelines. In the meantime, review the Cabinet paper and explanatory material, which outline proposed hourly accrual rates and transition plans.

2. Assess payroll system capability

• Most payroll software will need updates to handle hourly leave accrual and the proposed 12.5% Leave Compensation Payment.
• Ask your provider what development plans they have and when updates may be available.
• Consider whether a future system change or upgrade might be required if your current platform is already under strain.

3. Analyse your workforce profile

• Identify the number of staff on casual, variable, or part-time arrangements.
• This will help you model potential impacts of the proposed compensation payment and accrual method.
• Use this data to anticipate payroll cost shifts and budget accordingly.

4. Begin employee engagement planning

• Even though no changes are in force, early communication builds trust.
• Plan how you’ll explain the reforms once details are clearer.
• Reassure staff that entitlements are secure under the current law, and that the business is preparing for a smooth transition when new rules apply.

5. Line up expert support

• If you are an NZPPA member, we recommend attending the briefing on the 8th of October 2025 
• The transition will be complex and may involve contract reviews, policy updates, payroll system reconfiguration, and balance conversions.
• Begin conversations with payroll and HR specialists, legal advisors, or industry groups now so you have trusted guidance ready when the law is enacted.

Bottom line: Stay the course under the current Holidays Act, but start preparing quietly in the background. This ensures that when the Employment Leave Act does come into effect—most likely several years away—you’ll be ready to implement with minimal disruption.

How Alxemy Can Help

At Alxemy, we help organisations navigate payroll, workforce, and compliance change with confidence. While the Employment Leave Act is not yet law, aligning your foundations now will make the eventual transition smoother. Our services most relevant to this context include:

• Payroll Remediation & Compliance
  Many businesses are still working through Holidays Act compliance issues. Fixing these now reduces risk and places your organisation in a stronger position for any future transition.

• System Health Checks
  Our fixed-price health checks identify whether your current payroll and HR systems are equipped to handle potential reforms—such as hourly accruals, compensation payments, or new leave categories—while also uncovering inefficiencies and compliance gaps.

• Strategic Systems Advice
  We guide you on whether to enhance your current platform or plan for a longer-term shift. This includes reviewing vendor roadmaps, integration options, and scalability for future requirements.

• Managed Payroll & Systems Administration
  For organisations looking to reduce risk and overhead, we provide fully managed services that combine payroll processing with system administration, ensuring updates, compliance changes, and employee queries are handled seamlessly.

• Implementation & Change Support
  If the new Act is passed, employers will face policy, system, and process changes. Our consulting team is experienced in delivering large-scale implementations, staff training, and change management to minimise disruption.

We help organisations balance compliance today with preparedness for tomorrow.

Frequently Asked Questions

1. When will the Employment Leave Act take effect?
The Bill hasn’t been introduced yet. If passed this term, the earliest practical start for most sectors is 2028 after a 24-month implementation window.

2. What happens to the Holidays Act in the meantime?
The Holidays Act 2003 remains in force until the new law is fully passed and implemented.

3. How will annual leave be calculated under the new Act?
Annual leave will accrue in hours from day one at 0.0769 per contracted hour (4/52). Leave is banked in hours.

4. Can employees cash up their leave?
Yes. Employees will be able to cash up 25% of their total annual leave balance each year.

5. How does the new law affect casual workers and additional hours?
Casual workers and employees working additional hours will receive a 12.5% leave compensation payment on top of wages, rather than accruing additional leave.

6. How will sick leave accrue?
Sick leave will accrue in hours from day one at 0.0385 per contracted hour (2/52).

7. How are public holidays handled?
A new Otherwise Working Day test will determine if a public holiday falls on an expected working day. Alternative holidays will accrue hour-for-hour with each public holiday hour worked.

8. How will leave be paid?
All leave will be paid at an hourly leave pay rate based on base wages; fixed allowances will be paid per normal while employees are on leave.

9. What should employers do now?
Employers must continue to follow the Holidays Act 2003 as nothing has changed yet. It’s sensible to stay informed by monitoring the Bill’s progress and upcoming Select Committee process, but avoid making changes until the law is confirmed. In the meantime, you can start quietly assessing payroll system readiness for hourly accrual, reviewing how your workforce profile might be affected, and planning future communication and training so you’re prepared if and when the Employment Leave Act becomes law.

The Bottom Line

The replacement of the Holidays Act with the Employment Leave Act is one of the most significant workplace law reforms in recent memory. If passed, it promises to simplify payroll compliance, ensure entitlements are clearer and fairer, and reduce the errors that have plagued employers for decades.

But the change won’t happen overnight. With the Bill yet to be introduced, an implementation period of two years, and carve-outs for specific sectors, we’re looking at a 2028 start date for most businesses.

Until then, the Holidays Act 2003 remains the law of the land. Employers should continue to comply with its requirements, while keeping a close eye on developments in Parliament.

Preparation today will pay dividends tomorrow. By understanding the proposed reforms and planning early, organisations can ensure they’re ready for the Employment Leave Act – whenever it arrives.