Employment Leave Act: your questions answered

When 128 questions arrive in 87 minutes, you know a webinar is covering a hot topic.

On 26 August we ran our webinar titled The End of the Holidays Act? Employment Leave Bill explained, with Sanam Permal, our Employment Counsel, and Karyn Campbell from Payroll Consult. Sanam and Karyn discussed the key points that business owners and HR professionals need to know, now that the Employment Leave Bill has passed in parliament. 

You can watch the complete webinar here:

When we opened questions up to attendees, they flooded in. Sanam and Karyn covered as many as they could but we couldn’t get to every question live, so here are the ones that came up most, grouped by topic. We’ve answered them using the information in the Employment Leave Act and guidance from Employment New Zealand and MBIE.

New to all this? Start with the basics below. Already across the detail? Jump straight to the topic you need.

The basics

What is the Employment Leave Act and why is it replacing the Holidays Act?

The Employment Leave Act 2026 is New Zealand’s new law for annual leave, sick leave, bereavement leave and public holidays. It replaces the Holidays Act, which many employers find hard to apply and even harder to get right in payroll.

When does it start and do I need to do anything right now?

It starts on 6 August 2028 and it applies from the start of each employee’s first pay period, on or after that date. Until then you keep following the Holidays Act, even if you’re ready early. What you can do now is get ready, so our “Where to start” checklist at the end of this article is a good first step.

Does it apply to my business?

Yes. It covers employers and employees across New Zealand, whatever your size. How much it changes your day-to-day depends on how your people work. A team of full-timers on set hours will feel it differently from a team with lots of part-time, casual and variable-hour staff.

What are the biggest changes in plain English?

• Leave is counted and paid in hours rather than days or weeks.
• Leave starts building from an employee’s first day, in line with the hours they work.
• On casual and additional hours, you pay 12.5% on top of wages instead of annual and sick leave.
• People can take sick leave in part days, which isn’t possible under the current Holidays Act.
• Employees can ask to cash up to 25% of their annual leave balance each 12 months, with agreement from both sides.

What are “standard hours”, and why does everything hinge on them?

Standard hours are the hours your employment agreement requires an employee to work and you must pay for. They’re the foundation of the new Act, because they decide how much leave someone earns. Hours beyond that, which you don’t have to offer, which the employee can refuse and the employee receives an additional payment for, are additional hours. Hours worked under an agreement where neither side has to offer or accept work are casual hours. 

What is the leave compensation payment (LCP)?

LCP is a flat 12.5% payment you add to wages for additional and casual hours. It’s paid in the same pay period the hours are worked, in place of annual and sick leave building up on those hours, and it appears as a separate line on the pay statement. Worked examples are in the LCP section below.

What this means for your business

Will this cost me more?

It depends on how your people work. These are the areas worth checking:

• Reduced hours: Accrued leave is banked, so an employee who drops from 40 hours a week to 20 keeps every hour they’ve earned.
• Additional and casual hours: These attract the 12.5% payment, so it’s worth knowing how many you have.
• Leave pay: Commission and bonuses are no longer included, so leave pay may dip for commission earners. 
• Admin time: Reviewing agreements, updating policies and checking your payroll setup all take time, so it pays to start early.

Will my payroll software handle it?

Your software will need updating, so ask your provider how and when. If you use Employment Hero Payroll, we’re monitoring the changes and preparing our platform in the background to adapt in turn.

Timing and transition

Can we start following the new rules early?

No. Employment NZ is clear that you must keep following the Holidays Act until 6 August 2028, even if you’re ready. The new rules apply from the start of each employee’s first pay period on or after that date. Existing employees don’t move over at their anniversary.

Will we need to give everyone a new employment agreement?

Not necessarily, but you will need to review them. You get an extra year after commencement to update leave terms. Until 6 August 2029, if your agreement is more generous than the Employment Leave Act, you must honour the agreement. After that date, the statutory minimums override any conflicting terms, even generous ones. Changes must be discussed and agreed with employees, so build in time.

Can we update contracts before 2028?

Yes. Just make sure the new wording says current entitlements apply until 6 August 2028 and the new ones apply from that date.

What happens to existing balances?

On 6 August 2028, balances held in weeks and days will convert to hours using formulas in the Act. The converted leave will be paid as though it accrued under the new Act. Casuals’ annual leave is paid out at commencement and their sick leave isn’t converted.

Standard, additional and casual hours

What’s the difference between the three types of hours named in the Employment Leave Act?

• Standard hours are hours your agreement requires the employee to work and you must pay for.
• Additional hours are hours beyond standard that you don’t have to offer and the employee can refuse and the employee receives an additional payment for.
• Casual hours are worked under an agreement where neither side has to offer or accept work.

An employee can’t have standard and casual hours in the same role.

Our full-time employment agreement guarantees 40 hours but people regularly work 42.5. Which hours are standard?

The 40 are standard. The extra 2.5 are additional only if you don’t have to offer them, the employee can genuinely refuse them and the employee receives an additional payment for them. But MBIE warns that a mutual arrangement to offer and accept extra hours can develop over time, and those hours may then count as standard. A contract that says overtime is paid at the same rate doesn’t change this. Classification depends on whether the hours are required, not on the pay rate.

How long does an arrangement need to run before it becomes standard?

We haven’t found a set timeframe in the guidance published so far. Employment NZ plans further guidance over the transition. In the meantime, the safest approach is to check whether what your people actually work matches what their agreement says.

Our salaried staff work beyond standard hours. Does the 12.5% of leave compensation payment (LCP) apply?

LCP is paid on additional hours the employee receives additional payment for. MBIE also says hours a salaried employee works under an availability provision that their salary already compensates are not additional hours. So the wording of your salary clause matters.

How are on-call hours treated?

Availability hours aren’t standard hours.  Hours worked under an availability provision are generally additional hours, except where a salaried employee’s agreement provides that their salary already compensates them and no extra payment is due. The Act also says you can’t require someone to work under an availability provision while they’re on annual leave.

Is a night shift “additional hours”?

No, time of day doesn’t decide it. If the agreement requires the shift, it’s standard hours.

What about flexible hours, like 20 one week and 30 the next?

Agreements that give a range need a close look, because only the hours the employee is required to work are standard. If an agreement doesn’t say when standard hours are worked, you’ll need a notional roster. That should set out the days and hours that count as standard for leave purposes, or a method for working them out each time leave is taken. 

The leave compensation payment (LCP)

How does the 12.5% work in practice?

LCP is paid in the pay period the hours are worked, instead of annual and sick leave accruing on them. It’s on top of wages, including overtime and commission, and it appears separately on the pay statement.

It’s calculated on the ordinary hourly rate (broadly, your employee’s base rate before overtime or premiums), not the rate paid for the hour. If the ordinary rate is $30 and someone works five additional hours paid at $45 overtime, the LCP is 5 × $30 × 12.5% = $18.75.

Why 12.5% when annual and sick leave add up to less?

The Act sets one flat rate that replaces both annual and sick leave on those hours. MBIE describes it as higher take-home pay in place of paid leave. It doesn’t split into annual and sick percentages and it doesn’t scale up for staff who currently get five or six weeks.

What’s the “ordinary hourly rate” if someone has several pay rates?

MBIE defines it as the lowest wage rate for any hour of work, with the minimum wage as a floor. For people with more than one role, we’d wait for Employment NZ’s detailed guidance before settling your approach.

We’re hiring seasonal casuals from 1 October. Should we set up LCP now?

No. The Holidays Act still applies, so current rules, including pay-as-you-go where it’s available, stay in place until 6 August 2028.

Can we pay more than 12.5%?

The Act sets minimums and employers can offer more generous leave pay.

Accruing leave and balances

Do new starters get 160 hours on day one?

No. Leave is earned as people work, at a minimum of 0.0769 annual leave hours per standard hour. For someone on 40 hours a week, that’s 160 hours over a year, the equivalent of four weeks. It starts building from the first day and you can still agree to let people take leave in advance.

How does it work for part-time employees or a 37.5-hour week?

It’s proportional. Someone on 20 hours a week accrues about 80 hours a year, roughly 1.5 hours a week. A 37.5-hour week builds up 150 hours a year.

What happens to a balance when hours change?

Accrued hours are banked. Take someone who earns 160 hours on 40 hours a week, then drops to 20. They keep all 160, which now covers about eight weeks off. Under the current system, balances scale with the working week, so this is a real change for employers who have been scaling down.

How do we give five weeks of annual leave?

0.0769 is the minimum rate, so you’ll need a higher contractual accrual rate. For a full five weeks, that’s about 0.0962 hours per standard hour (five divided by 52).

How does sick leave accrue?

At a minimum of 0.0385 hours per standard hour, with a cap of 160 hours. Once someone hits the cap, accrual stops until they use some. For someone on 20 hours a week, that’s 40 hours a year. People can take sick leave in part days, which isn’t possible under the current Holidays Act.

Do casuals get sick or bereavement leave?

Casuals don’t accrue sick or annual leave. They get LCP instead. But everyone, including casuals, can access bereavement leave and 10 days of family violence leave from day one.

What about ACC and parental leave?

Annual and sick leave keep accruing during parental leave. They generally don’t accrue while someone is receiving accident compensation, except for standard hours they work or take as paid leave during that period. Annual leave taken after parental leave is paid at the normal rate, without the current override set by the Holidays Act.

Leave pay

Do commission and bonuses count when someone takes leave?

No.  For waged employees, leave is generally paid at the lowest hourly rate payable for the shift the leave falls on. Different calculations apply to salaried employees, averaged salary employees and those paid by piece work or commission. Commission, bonuses and variable allowances aren’t included, which means commission earners will see a slight dip in leave pay. Piece-rate and commission-only employees get no less than the minimum wage.

What about allowances?

Fixed allowances, meaning those payable whether or not the employee is on leave, are paid in full. Variable allowances, like those for special duties, aren’t included.

Taking leave and cashing up

How does cashing up work?

Employees can ask to cash up to 25% of their annual leave balance each 12 months (although not in their first year). The 25% is measured on the balance at the end of the day before their most recent start-date anniversary. It needs agreement from both sides and as covered in our webinar, you need to respond to a request in writing within 14 days. 

Can we still run a closedown?

Yes but you’ll need to give 21 days’ written notice. Agreed closures outside a closedown need a written agreement at least 14 days beforehand.

Can we still turn leave requests down?

You can’t unreasonably withhold consent to a request to take accrued leave. In each 12-month period, you must allow the balance held at the employee’s latest start-date anniversary.

Public holidays

How do we tell if it’s an “otherwise working day”?

If the agreement specifies days or a pattern of work, that  will usually decide it. If it doesn’t, or the employee has also worked additional days, the day counts if the employee worked, or was on leave, on 50% or more of that weekday over the last 13 weeks.

What changes when someone works a public holiday?

For each hour worked, they get their  contractual pay for that hour, excluding any identified public holiday premium, plus the greater of 50% of their ordinary hourly rate or premium, such as double time. They also earn alternative leave in hours, one hour for every hour worked. On-call hours, where the agreement allows you to require them to work, also earn alternative leave, capped at the hours they would otherwise have worked that day.

Where to start

• Audit your employment agreements for clear standard hours.
• Map how people actually work against what their contracts say.
• Check your pay codes, fixed versus variable pay and leave balances.
• Talk to your payroll provider about what will change.
• Update policies for part-day leave and day-one entitlements.

Have compliance confidence with Employment Hero

We know that these changes are going to be huge for New Zealand employers. That’s why we’re right along with you, monitoring the upcoming changes and preparing our platform in the background to adapt with the new legislation. Let’s tackle this transition together. 

Employment Hero Payroll isn’t just there to help you with compliance either. Our payroll software automates over 150 steps in the payroll process and makes it easy to complete payday filing in just a few clicks. Employees can easily complete and submit timesheets which are automatically factored into their pay, along with leave, PAYE, KiwiSaver and other deductions.   

To find out more, book a call with one of our business specialists. 

The information in this article is current as at 12 October 2026 and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its affiliates (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.