The Employment Leave Act 2026 replaces the Holidays Act 2003 on 6 August 2028.
It received Royal assent on 6 August 2026, and there is a two-year implementation period before the new rules apply. Until then, nothing changes. You keep following the Holidays Act, and you cannot start using the new rules early, even if your systems are ready.
Two years sounds like plenty of time. In payroll terms, it isn't.
Here's what's changing, explained in plain English.
Leave will be earned in hours, not granted in annual chunks
This is the biggest change, and almost everything else follows from it.
Under the Holidays Act, annual leave arrives as a lump: four weeks, on your anniversary date, after twelve months of continuous employment. Under the new Act, annual leave and sick leave accrue from day one, in hours, against an employee's standard hours.
Alternative holidays move to hours-based accrual too.
For a salaried employee on fixed hours, this won't feel dramatically different. For anyone whose hours vary, it changes the picture considerably.
What it means for you: your payroll needs to know what each employee's standard hours actually are. Not roughly. Specifically.
There are now three types of hours
The whole framework rests on a distinction between three kinds of hours:
Standard hours – the hours an employee is required to work under their employment agreement and that you must pay them for. This excludes hours worked under an availability provision.
Additional hours – hours worked on top of standard hours, where you're required to make an additional payment for them.
Casual hours – hours worked by an employee whose employment agreement doesn't require you to offer work, or require them to accept work you offer.
Leave accrues against standard hours. Additional and casual hours are treated differently.
What it means for you: every employee needs to be correctly classified, and that classification comes from their employment agreement. If the agreement is vague, or doesn't match how the person actually works, this is where it will show up.
Additional and casual hours get a 12.5% payment instead
Rather than accruing annual and sick leave, all additional and casual hours attract a 12.5% upfront leave compensation payment.
If you employ casual staff, or if your team regularly works additional hours, this is worth understanding early. It replaces the current 8% holiday pay approach for casuals and covers sick leave as well.
What it means for you: the difference between standard, additional and casual hours has a direct cost attached to it. Getting the classification wrong is no longer just an administrative issue.
Taking leave becomes simpler
An employee will use one hour of accrued leave for every hour they take off work. They'll also be able to take part days off.
That's it. No weeks, no days, no working out what a "day" means for someone who works a nine-hour Tuesday and a four-hour Friday.
This is a genuine improvement, and it removes one of the most persistent sources of confusion under the current rules.
One rate for paying all leave
At the moment, paying leave correctly means working through ordinary weekly pay, average weekly earnings, relevant daily pay and average daily pay, depending on the type of leave and the situation. It's the part of the annual leave calculation most businesses find hardest to get right.
All four calculations go. In their place is a single hourly leave pay rate, based on the employee's lowest hourly rate for the day the leave is taken, and used for every type of leave.
Fixed allowances continue to be paid in full during leave.
Annual leave taken after parental leave will be paid the same way as any other annual leave, which resolves a long-standing sore point.
What it means for you: the calculation gets simpler. What it's calculating from does not. The rate depends on the employee's hourly rates being right in the system, and on your allowances being set up correctly.
A clearer test for public holidays
Public holiday entitlements will be based on a new, clearer otherwise working day test.
If you employ people on rosters, variable hours or irregular patterns, you'll know this is one of the hardest judgement calls in payroll right now. A clearer test is welcome.
What it means for you: the test is clearer, but it still needs information about how each person actually works. That information has to come from somewhere.
What hasn't changed
Two things worth being direct about.
First, the Holidays Act still applies until August 2028. Every obligation you have today, you still have.
Second, employers remain obliged to remediate employees for historical underpayments under the Holidays Act. New legislation does not draw a line under old errors. If something has been calculated incorrectly, replacing the Act it was calculated under doesn't resolve it.
More detail is still coming
MBIE has published a snapshot and a detailed explainer, and has set out a timeline for further guidance and resources over the implementation period.
Some of the practical questions – particularly around transition, and how existing balances are handled – will be answered as that guidance is released. I'll update this post as it comes.
The part that doesn't get talked about enough
Most of the coverage of this legislation focuses on the calculations. That's understandable, because the calculations are what changed.
But in my experience, the calculations were rarely the whole problem.
When a business has ended up with a payroll issue under the Holidays Act, it usually wasn't because someone couldn't work out average weekly earnings. It was because the employment agreement didn't reflect how the person actually worked. Or a work pattern was set up once and never revisited. Or an exception was made for someone in 2019 and everyone has worked around it since.
Simpler calculations don't fix any of that.
The new rules will be applied to the employees, agreements and data you already have. If those are unclear now, they'll be unclear in 2028 – and they'll be feeding a calculation nobody has run before.
That's the real work of the next two years, and it's work you can start on immediately.
Where to start
The two-year window is the point. It exists so employers and payroll providers can get ready, and the preparation that matters most doesn't depend on any further guidance.
I've written a separate post on exactly what to do now: what you should be doing to get ready for the Employment Leave Act.
If you'd rather talk it through, I'd love to help.
About the author
Karyn Campbell is a New Zealand payroll consultant and founder of Payroll Consult. With 5+ years running her own consultancy and a background in payroll software – including roles across client support, onboarding, and partnership management at a leading NZ payroll provider – Karyn brings a rare combination of technical knowledge and real-world compliance experience. She works with business owners, bookkeepers, and payroll teams across New Zealand, specialising in payroll audits, system reviews, and fixing complex payroll issues for teams that don’t work a typical 9-5.
