Year-End Update on New Zealand’s Proposed Employment Leave Law

What employers and workers should know before Christmas

As the year comes to an end and businesses across New Zealand prepare for the Christmas and New Year shutdown period, many employers and employees are asking questions about annual leave, public holidays, and holiday pay. This year, those questions are heightened by the Government’s announcement of major proposed changes to New Zealand employment law through the introduction of a new Employment Leave Act.

It is important to be clear from the outset: the new law is not in force.

The Holidays Act 2003 remains the governing employment legislation for all leave entitlements this Christmas season and into the new year.

The law has not changed yet

The proposed Employment Leave Act has not yet been passed by Parliament. Before any new rules apply, the legislation must go through the full law-making process, including introduction to Parliament, Select Committee review, and final approval.

Once enacted, the Government has indicated there will be a two-year transition period to allow businesses to adjust payroll systems and employment agreements.

For now:

• The existing Holidays Act 2003 continues to apply.
• Employers must follow current holiday pay calculation rules.
• Annual leave, sick leave, public holidays and alternative holidays are unchanged.
• No business is required to modify payroll practices at this stage
• The earliest realistic start date for the new law is expected to be around 2028.

This article explains what has been proposed so far under the Government policy announcements. The final Employment Leave Act may look different once Parliament considers the Bill.

Why this matters for New Zealand businesses

December is the busiest time of year for leave. Many payroll issues arise during the holiday season, particularly when annual leave overlaps with statutory public holidays.

The Holidays Act is widely regarded as one of the most complex employment laws in New Zealand. Employers regularly make mistakes with holiday pay calculations, including miscalculating average weekly earnings and ordinary weekly pay.

The proposed reforms are intended to simplify leave entitlements and reduce long-term compliance risk for employers.

Understanding future employment law reform now allows businesses to prepare for change rather than reacting when the law eventually comes into force.

The proposed new system explained

If passed, the Employment Leave Act would introduce a new approach to annual leave and sick leave calculations.

Leave would no longer be measured in weeks.
Instead, all leave would accrue in hours.

Employees would accumulate leave based on hours actually worked. Once earned, those hours remain protected, even if the employee later reduces their working hours. This is a significant change from the current model, where the value of leave changes depending on how many hours are being worked when the leave is taken.

Annual leave would accrue at a rate equivalent to four weeks per year for a full-time employee.
Sick leave would accrue gradually and would be capped at a maximum number of hours.

This model is intended to protect workers returning from parental leave or moving into part-time work, while also allowing employers to better manage long-term leave liabilities.

Holiday pay under the new law

One of the most important employment law changes relates to holiday pay calculations.

Currently, employers must calculate holiday pay using two methods and apply whichever is higher: ordinary weekly pay or average weekly earnings. This requirement often results in overtime, bonuses and commissions increasing holiday pay long after those payments were earned.

Under the proposed law, leave would be paid at a single base rate.

Holiday pay would be based on an employee’s normal hourly rate at the time leave is taken, plus relevant fixed allowances and averaged piece rates where applicable.

Bonuses, commissions and overtime premiums would generally no longer be included in holiday pay calculations.

This reform would make payroll processing simpler and more predictable, but may reduce holiday pay for commission-based employees.

Overtime and casual employment changes

The new Act proposes a system of leave compensation payments.

Casual employees would no longer accrue leave balances. Instead, they would receive an additional twelve point five percent on top of their normal hourly pay each payday. This payment is intended to replace both annual leave and sick leave.

Employees who work overtime beyond their contracted hours would receive the same additional payment instead of earning extra leave.

The purpose of this change is to ensure that contracted hours accurately reflect regular working patterns and to stop unpaid liabilities from building up over time.

Public holidays and alternative holidays

If employees have irregular working patterns, a new test would apply to determine whether a public holiday is paid.

A public holiday would count as a paid working day if the employee worked that weekday in at least seven of the previous thirteen weeks.

If a public holiday is worked, alternative leave would be credited in hours rather than as a full day.

Bereavement and family violence leave remains unchanged

Not all leave types will convert to hours.

Bereavement leave and family violence leave would continue to operate on a daily basis. These entitlements would remain available from the start of employment and could be taken in part days.

When is the Employment Leave Act likely to apply?

The Government expects the Bill to be introduced in 2026.
Once enacted, there will be a two-year transition period.

Based on current estimates, full implementation is unlikely before 2028.

For this holiday period, and for the foreseeable future, the Holidays Act remains the governing law.

What employers should consider now

Although no immediate action is required, businesses may use this end-of-year period to plan ahead.

Things employers can review include:

Whether employment agreements clearly define working hours.
Whether payroll systems can track leave balances in hours.
Whether commission or bonus structures may be affected by the base rate model.
Whether reliance on overtime remains commercially sustainable.

Employees may also wish to consider how their remuneration structure may affect future leave entitlements.

Final word as the year ends

While the Employment Leave Act represents significant employment law reform, nothing changes this Christmas.

Your entitlements, obligations, and holiday pay still operate under the Holidays Act 2003.

If you have questions about leave entitlements, holiday pay calculations, payroll compliance, or the potential impact of future employment law reform, proper advice now can prevent costly errors later.