The Holidays Act Is Being Replaced: What NZ Employers Need to Know About the Employment Leave Bill

For more than two decades, the Holidays Act 2003 has been one of the most quietly dreaded pieces of legislation on any New Zealand employer's desk. It's the reason payroll remediation projects have paid out hundreds of millions of dollars across the public and private sector alike — from Health New Zealand's $657 million-plus remediation programme to household names like McDonald's and Bunnings — and the reason an average underpayment of $70 to $1,800 per employee shows up again and again in businesses of every size, including small operators with a handful of staff.

That's about to change. In March 2026, the government introduced the Employment Leave Bill — a full repeal-and-replace of the Holidays Act, to be known as the Employment Leave Act once it passes. It's currently sitting with Parliament's Education and Workforce Committee, which was due to report back to the House this month. If you employ anyone in New Zealand, this is worth understanding now, not in 2028 when it actually takes effect.

Why the Holidays Act is being scrapped, not just patched

The problems with the current Act are well known to anyone who's tried to apply it to a real workforce. Its provisions are unclear, overly complex, and genuinely difficult to apply correctly to modern working patterns — variable hours, casual staff, irregular rosters, commission and allowances. The result has been exactly what you'd expect: high compliance costs, widespread non-compliance, and employees not reliably getting what they're owed.

The Employment Leave Bill's stated purpose is to build something "simple and clear" that gives both employers and employees actual certainty about entitlements. Rather than amend the existing Act again, the government has opted to repeal it entirely and start over.

What's actually changing

The Bill affects how five types of leave are earned, taken, and paid: annual leave, sick leave, family violence leave, bereavement leave, and alternative (in-lieu) leave. The headline changes are:

• Hours-based accrual from day one. Annual and sick leave will accrue in hours, against an employee's standard hours, from their very first day — replacing the current system of entitlements building up in blocks (like the familiar "four weeks after 12 months").
• A new 12.5% upfront leave compensation payment, paid in lieu of annual and sick leave accrual, for additional and casual hours. This is a genuinely new concept that doesn't exist in the current Act.
• A clearer "Otherwise Working Day" test for public holiday entitlements — intended to resolve one of the most litigated and misunderstood parts of the current law.
• Alternative holidays will also shift to the new hours-based accrual model.

For a business used to the current Act's entitlement-block logic, this is a genuinely different way of thinking about leave — not a tweak.

When it actually takes effect

Here's the detail that matters most for planning: the Bill won't take effect the moment it passes. Most of the Act would come into force two years after Royal Assent, with the state schooling sector given up to ten years to transition. Based on the current timeline, that puts the new regime landing around 2028 for most employers.

That two-year runway exists specifically so employers and payroll providers have time to update systems, processes, and employment agreements — but it isn't a reason to wait until 2027 to think about it. The Bill also includes transitional provisions: existing employment agreements will need to comply with the new Act's requirements from the day it commences, and certain provisions must be brought into full compliance within one year of that commencement date. Two years sounds like a long time until you're the one updating every employment agreement in the business on a deadline.

The government has said it wants this legislation enacted within the current Parliamentary term, which points to a push to get it passed before the November 2026 election. The Select Committee reported back to the House around 12–13 July, and the Bill could still change through the rest of the Parliamentary process before it's finalised — so treat the details above as the current shape of the Bill, not its final form.

What hasn't changed (yet)

This is the point most worth repeating to any business owner reading a headline about this and assuming they can relax: the current Holidays Act still applies, in full, until the new legislation actually commences. That means employers must keep providing correct entitlements and payments under the existing rules, and are still on the hook for any historical underpayments they've already got sitting in their payroll history. Nothing about a future law change reduces that obligation today.

What employers should do now

You don't need to overhaul your payroll system this quarter. But sitting this out until the Bill passes is the wrong instinct, given how much ground the changes cover. Sensible first steps:

1. Get a clear picture of your current Holidays Act compliance now, while the old rules still apply — this is exactly the kind of gap a proper audit surfaces before it becomes a remediation project.
2. Start tracking the Bill's progress rather than waiting for a final version, since the broad shape (hours-based accrual, the 12.5% casual/additional-hours payment, the new public holiday test) is unlikely to disappear even if details shift.
3. Flag payroll system readiness with your provider early — a two-year runway is generous, but only if you start using it well before the deadline crowds in.
4. Plan for the one-year compliance window on employment agreements once the Act commences, rather than treating "two years away" as "not yet relevant."

The bottom line

This is the most significant change to New Zealand's leave entitlements framework in more than two decades, and it's coming whether or not most small and medium employers are paying attention yet. The good news is there's real time to prepare properly, rather than reacting under pressure the way so many businesses have had to with Holidays Act remediation. The businesses that start now — even just with a clear-eyed audit of where they stand today — will be the ones who glide through the transition instead of scrambling through it.

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Not sure where your business currently stands under the Holidays Act — let alone the one coming?

Book a free HR & H&S audit and we'll help you find out. No cost, no obligation — just a clear picture of where you stand and what to fix first.