Changes to employee leave: what employers need to know before 2028
Changes are coming to the way New Zealand employers calculate and manage employee leave. The Employment Leave Act 2026 has passed into law and will replace the Holidays Act 2003 in August 2028. The new system is intended to make leave entitlements clearer and easier for employers and employees to understand.
There's time to prepare, but the current rules still apply. Getting familiar with the changes now means fewer surprises when the switchover arrives.
When do the changes take effect?
The new Act comes into force on 6 August 2028. For each employee, the new rules will apply from the beginning of their first pay period starting on or after that date. The two-year implementation period gives employers and payroll providers time to prepare their systems and processes.
What's changing?
The new legislation changes how leave is earned, taken, and paid. Key changes include:
Leave accruing from day one: Annual and sick leave will accumulate in hours against an employee’s standard hours, rather than being provided as annual entitlements.
Payments for additional and casual hours: A 12.5% upfront leave compensation payment will replace annual and sick leave accrual for these hours.
Taking leave in hours: Employees will use one hour of accrued leave for each hour taken off, allowing for part-day leave.
A common leave pay calculation: An hourly leave pay rate, based on the employee’s lowest hourly rate for the relevant shift, will apply across leave types. Fixed allowances will continue to be paid in full during leave.
Public and alternative holidays: A clearer “Otherwise Working Day” test will determine public holiday entitlements, while alternative holidays will accrue in hours.
Annual leave after parental leave: This will be paid in the same way as other annual leave.
What this could mean for employers
How much these changes affect your business will depend on how your team works. Businesses with casual staff, variable hours, shift work or regular allowances are likely to see the biggest differences in how leave is recorded and paid.
Employment New Zealand recommends thinking now about:
Whether your payroll system can track leave in hours
How your employment agreements and workplace policies describe leave
Whether your current leave records are accurate and up to date
Keep following the current rules
Employers can't move to the new system early, even if your payroll software is ready. The Holidays Act continues to apply until the new rules take effect for each employee.
The reform also doesn't remove an employer's responsibility to fix any historical leave underpayments. If there are errors in your current calculations, now is a good time to find and address them.
For now, the focus is on understanding what's coming, keeping accurate records and giving yourself time to prepare. You can read more on MBIE's Holidays Act reform webpage.
Get ready for the new leave rules
Leave changes affect your payroll, your costs and your team, so they're worth planning for well before 2028. We'll keep clients updated as more guidance becomes available.
If you'd like to check your current leave calculations or talk through what the changes could mean for your firm, talk to your usual Bennetts Proactive advisor or call 07 573 8446