For many New Zealand employers, understanding the Holidays Act (2003) has been a challenge. Commonly perceived as lacking crucial clarity, some employers have found themselves in hot water after misinterpreting regulations. 

Amendments to tackle the ambiguity issues were first proposed in 2021 but four years and a couple of elections later, the Act still remains the same. Now, the Government has announced a proposal to repeal the Holidays Act completely and replace it with a new Employment Leave Act. This Act will include new guidelines around leave and pay. 

New Zealand employers need to know what’s coming. That’s where our factsheet can help – we’ll break down all the new rules in the proposed Employment Leave Act and when we can expect them to take place. 

Download the factsheet by filling in the form on the right. 

Why the Holidays Act is changing

The Holidays Act has been in place for a controversial 22 years. The legislation, which covers employee leave entitlements and leave pay, should ideally give employers guidelines to work from. The resounding feedback is that these guidelines have proven to be anything but clear, leading to many employers getting in hot water after incorrectly interpreting the rules. 

It affects everyone, from small businesses to large organisations. Even the biggest companies have made mistakes in their Holidays Act compliance. A couple of years ago, Health New Zealand (aka Te Whatu Ora) revealed that they’d incorrectly paid the leave of around 90,000 current employees and 130,000 former employees. The project to fix this has been huge and to date, Health NZ have made payments of over $544.2 million. 

Errors in compliance can have a huge impact on a company’s bottom line. That’s why Kiwi businesses have been calling out for changes that can remove that ambiguity and help them make the right choices. 

Key criticisms of the existing system

So what makes the Act difficult to understand? There are a few key complaints that often appear when the Holidays Act is being discussed:

The many leave calculations 

Ordinary Weekly Pay (OWP), Average Weekly Earnings (AWE), Relevant Daily Pay (RDP)… calculating leave pay in New Zealand can sometimes feel like you’re only communicating in acronyms. The way that leave is calculated varies across different types of leave and for different types of employees. If you’re trying to figure out definitions like OWP or AWE, you’ll also need to do separate calculations. 

In dreaded situations like deciding on an Otherwise Working Day for casual employees, the rules also tell you that you need to come up with your own interpretation based on a number of factors. Which is not ideal!

That’s why we created a factsheet to explain the types of calculations – there’s lots to understand. 

So many businesses are being caught out

Many businesses have found themselves to be non-compliant when it comes to the Holidays Act. It’s not been unusual in the last few years to see announcements from organisations like Bunnings, Fulton Hogan, McDonalds and even Government entities like MBIE and ACC, stating that they’ve discovered errors in their leave payments. 

These errors have been expensive. Health New Zealand (aka Te Whatu Ora) revealed that they’d incorrectly paid the leave of around 90,000 current employees and 130,000 former employees. To date, Health NZ have made remediation payments of over $544.2 million. 

It appears that these mistakes haven’t been done maliciously. When non-compliance is this widespread, there’s clearly been a lot of confusion around the Holidays Act guidelines.

Employees are in the dark too 

It’s not just employers scratching their heads. Employees find it challenging to understand what they’re legally entitled to, leading to a lack of confidence in the leave pay they’re receiving. As the last few months have shown, it could also take employees years to discover that they’ve been incorrectly compensated. 

Overview of the reform timeline

The actual enforcement of new leave legislation won’t be any time soon. However, with our short election cycles and the graveyard of previous overhaul proposals looming in the background, it is thought that these proposals should be passed quickly in Parliament in order for them to stick. 

With that in mind, the Workplace Relations and Safety Minister Brooke Van Velden has said she still expects to see these changes to the Holidays Act passed before the next election, which will take place in late 2026. 

The next step for the proposals is for the full Employment Leave Act to be drafted, then it will be considered by a Select Committee. The public and interested parties will also be able to provide input at that stage. 

Van Velden has said that there will be a 24-month implementation period between when the changes have been passed in Parliament and when it comes into force. So all-in-all, we could be looking at having the Employment Leave Act in action in around 2028. 

What the proposed changes are 

The first of the changes is arguably the biggest – goodbye, Holidays Act 2003; hello, Employment Leave Act. This new Act will completely replace the old one with a raft of different guidelines. 

As for what’s in the new Employment Leave Act, here’s a top-level overview of the Government proposals…

Annual leave: accrual, use, cash-up

Accrual: Annual leave will be earned from day one of employment, in direct proportion to the contracted hours worked. It will accrue at a rate of 0.0769 hours (4/52) per contracted hour. Accrual continues during paid leave and when on parental, jury and volunteer leave. However, leave won’t be accrued when the employee is receiving accident compensation or on any unpaid leave. When an employee’s hours change, the accrued annual leave hours will be ‘banked’ and not automatically scale to match.

Use: Employees will be able to use accrued leave hours to take any part of a day off work. Leave will be taken in hours, as opposed to days.

Cash-up: An employee will be able to request to cash-up 25% of their annual leave as of their last 12-month employment anniversary in each 12-month period.

Sick leave, bereavement & family violence leave changes

Sick leave: Sick leave will be earned from day one of employment, in direct proportion to contracted hours worked. It will accrue at a rate of 0.0385 hours (2/52) per contracted hour. A cap of 160 hours will stop new accrual until the employee has used some of their stored entitlement. Employees will also be able to use accrued sick leave hours to take any part of a day off work.

Bereavement and family violence leave: All employees will be able to access these leave types from day one (currently after 6 months). They will remain days-based entitlements, but workers will be able to take part days of leave.

Leave for additional/casual hours: Casual employees and employees who work extra hours on top of contracted hours will not accrue annual or sick leave for that time. Instead, they will receive a leave compensation payment set at 12.5% of their ordinary hourly wage rate, paid at the time the hours are worked.

Public / alternative holidays & “otherwise working day” rule

“Otherwise working day” rule: A new clear test will be used to determine whether an employee would have worked on the day. The test is based on whether the employee has worked 50% or more of the relevant days (e.g. Mondays) in previous weeks.

Alternative holidays: Employees will accrue alternative holiday hours at a rate of one hour for every hour worked on a public holiday that is an otherwise working day.

Pay calculations & exclusions (bonus, commission)

Pay calculations: The same hourly leave pay rate will be used for all types of leave. It will be based on an employee’s base wage for the day of leave.

Exclusions (bonus, commission): Other components of pay, like bonuses, commissions and variable allowances, will not be included in the hourly leave pay rate. Fixed allowances (such as an accommodation allowance) will continue to be paid in full during leave.

Parental leave pay: The “override” to normal payment rules for annual leave taken after parental leave will be removed. When annual leave is taken after returning to work, it will be paid at the same rate as any other leave.

What employers should do now to prepare

The first thing is to be across the changes – so if you’re on this page, you’re making a good start. The full list of changes can be found on our factsheet, or on the Beehive’s website. Make sure to familiarise yourself with how they will change your current processes and what you’ll need to consider when it comes to allocating leave and pay.

Preparation is key. With the exact date of these changes still unconfirmed, it can be helpful to understand exactly how they’ll affect you so that you’re ready.

Employment Hero Payroll is ready for the changes

This is a good time to start looking into payroll systems as a way to automate your payroll and keep it up to date. Employment Hero Payroll will automatically roll out the changes to the Holidays Act across the system when they’re put into effect. You won’t have to make any changes on your end to ensure your payroll is up to date.

And, if you’re using Employment Hero for leave management, the system will be able to update the correct leave allocations. That way, employees can see an accurate picture of what they are currently eligible for too.

Find out how Employment Hero Payroll can help you and book a call with one of our team today. 

The information in this article is current as at 13 August 2025, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (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.