Why the Reform?

The current Holidays Act has long been criticised for its complexity and ambiguity. Employers often struggle to interpret and apply the law correctly, leading to costly remediation efforts. Payroll providers face challenges in automating leave calculations, and employees frequently misunderstand their entitlements.

Key Changes in the Proposed Legislation

The new employment leave legislation, approved by Cabinet in August 2025, introduces several transformative changes:

• Hourly Accrual from Day One 
  Annual and sick leave will accrue continuously in hours rather than lump sums in days or weeks. This change aligns leave entitlements more closely with actual work patterns.
• Proportional Sick Leave 
  Sick leave will be earned based on contracted hours, eliminating the one-size-fits-all approach and ensuring fairness across different employment types.
• Upfront Leave Compensation for Casual and Extra Hours 
  Casual employees and those working beyond contracted hours (unless salaried) will receive a 12.5% upfront payment in lieu of leave accrual.
• Unified Leave Payment Method 
  All types of leave will be paid using a single hourly rate based on the employee’s base wage for the day of leave. Fixed allowances will continue to be paid in full during leave.
• Parental Leave Alignment 
  Annual leave taken after parental leave will be paid at the standard rate, removing the current reduced rate penalty.
• Alternative Holidays and Public Holiday Tests 
  Alternative holidays will also accrue in hours. A new “Otherwise Working Day” test will clarify public holiday entitlements.
• Part-Day Leave Flexibility 
  Employees will be able to take part-days of leave across all leave types, offering greater flexibility for both workers and employers.
  
  

Implementation Timeline

Once the Employment Leave Bill is passed into law, there will be a 24-month implementation period. This transition window is designed to give employers, payroll providers, and software vendors ample time to update systems and processes.

Implications for Global Payroll and Tax Teams

For multinational organisations operating in New Zealand or managing New Zealander employees remotely, the reform presents both challenges and opportunities:

• System Overhauls: Payroll systems must be reconfigured to support hourly accruals and unified leave payment methods.
• Compliance Assurance: Clearer rules reduce the risk of non-compliance and associated penalties.
• Employee Communication: HR teams will need to educate staff on the new entitlements and how they’re calculated.
• Cross-Border Consistency: The reform may inspire similar changes in other jurisdictions, especially where leave laws are similarly complex.
  
  

What's Next?

The legislation will be drafted and introduced to Parliament, followed by a Select Committee review. Public and stakeholder input will be invited during this phase, offering payroll professionals a chance to shape the final law.

New Zealand – Global Insights

For further detailed guidance on payroll, employment law, and compliance in New Zealand, visit our New Zealand Global Insights on the activpayroll website. You can also explore broader regional updates and expertise in the APAC Global Expertise web section.

Next Steps

If you have any questions or need tailored advice, we encourage customers and potential clients to get in touch. Please complete our Contact Us form, and a member of our team will be happy to assist with your queries.