The Government intend to repeal the Holidays Act 2003 and replace it with a new Employment Leave Bill. The Bill has now passed its first reading. It’s hoped that it will simplify leave entitlements and remove some of the challenges in the current legislation.
With change on the horizon, it’s a good time to consider how this Bill will change the current legal framework and the impacts that this will have on employers, employees and payroll providers alike.
Accruing Leave
One of the biggest changes under the proposed Bill is that full and part time employees will accrue annual leave and sick leave from the first day of their employment (i.e. rather than having to first work for 12 months or 6 months respectively). The way in which leave will accrue is also set to change.
Annual leave will accrue in hours at a rate of 0.0769 hours for each hour worked. A full-time employee that does not take leave within the first 12 months of their employment will therefore accrue an equivalent of 4 weeks of annual leave.
Sick leave will accrue in hours at a rate of 0.0385 hours for each hour worked. A full-time employee who takes no sick leave within the first 12 months of their employment will still accrue the equivalent of 10 days of sick leave that we are currently used to.
Employees will also be able to take both annual leave and sick leave in hours instead of days, so this will be something for payroll providers to be aware of.
Casual employees will continue to be paid their annual leave entitlements as they go, however the relevant rate they are paid will increase from 8% of their ordinary hourly wage for every hour they have worked to 12.5%. This could mean considerable additional expense for businesses that employ workers on a casual basis.
Bereavement and Family Violence Leave
Under the proposed Bill, employees will be entitled to both Bereavement and Family Violence Leave from the first day of their employment (i.e. rather than having to first work for 6 months). Unlike Annual Leave and Sick Leave entitlements, the leave will remain day based, however, employees can choose to take this on a part day basis if they wish.
Public Holidays
The Employment Leave Bill would also introduce a new Otherwise Working Day Test. Instead of having to take several factors into account, (as is the case under the current Act) an employee would be entitled to a public holiday if they had worked 50% or more of the weekday that the public holiday falls on over the past thirteen weeks.
If an employee works a public holiday, the employee will accrue an hour of alternative leave for every hour that they work, in addition to any extra remuneration that they receive for working that public holiday.
Leave Payment
Currently employers are required to make different calculations for the different types of leave that their employees take. These calculations can be confusing, and often become overly complicated when overtime, commission or allowances need to be considered. The Bill aims to simplify this.
For employees who have a salary the hourly rate of leave will be the equivalent to one standard hour of work. If an employee is paid wages, their hourly rate of leave will be based on the lowest hourly rate payable for the day on which leave is taken.
What’s next?
The Education and Workforce Committee is calling for submissions on the Bill and these close on 14 April 2026. These submissions can be made on the New Zealand Parliament website. Hearings of evidence for the Bill are likely to begin on 22 April 2026. This means there could be further changes made to the Bill, so watch this space!
Should the Bill be passed into law, changes will need to be made to both pay roll systems and employment agreements, which is something that Corcoran French can provide advice on should the need eventuate.