New Zealand’s Employment Leave Act 2026 received Royal assent on 6 August 2026 and will replace the Holidays Act 2003 on 6 August 2028. The legislation changes how employees accrue, take and are paid for leave, affecting payroll calculations, employment agreements and leave management.
The two-year transition period gives employers and payroll providers time to prepare. Until the new Act comes into force, the existing Holidays Act remains in effect and employers must continue to follow its requirements. The new rules cannot be applied early.
The Employment Leave Act introduces changes to annual leave, sick leave, bereavement leave, family violence leave, public holidays and alternative leave. It establishes a new approach to calculating entitlements in hours, with implications for employees’ working arrangements and the systems used to manage their leave.
Annual leave and sick leave will accrue in hours from the beginning of employment, based on employees’ standard hours, rather than being provided as annual entitlements. Employees will use accrued leave in hours, allowing them to take leave in part days.
The Act also sets rules for annual leave cashing up and limits the minimum statutory sick leave balance that can be accrued to 160 hours. Employers can provide more generous entitlements.
For payroll teams, this will require changes to how leave accruals, balances and absences are calculated and recorded. Accurate working-hour data will be essential, particularly for employees with variable schedules or multiple working patterns.
The Act changes how bereavement leave and family violence leave entitlements are earned and applied, including how leave is calculated for different working arrangements.
Employers will need to understand how the new provisions apply to their workforce and ensure that payroll and HR processes can determine the relevant entitlement and record leave correctly.
Public holiday entitlements will be determined using a revised test for whether a day is one on which an employee would otherwise have worked. The Act also changes how alternative leave is accrued and taken, moving to an hours-based approach.
These changes will affect the way employers assess public holiday eligibility, calculate payments and record alternative leave. Rosters, shift patterns and working-hour records will be important in applying the rules consistently.
The Act introduces a consistent hourly leave payment rate based on the employee’s lowest hourly rate for the shift in which the leave is taken.
It also provides for a 12.5% upfront leave compensation payment in place of annual and sick leave accrual for eligible additional and casual hours. This payment is subject to the Act’s definitions and eligibility rules, so employers will need to distinguish between standard hours and hours that qualify for compensation.
Payroll systems and processes will need to apply the relevant calculation to each type of hour and retain records that support the payments made.
The changes will affect more than payroll calculations. Employers will need to review employment agreements, leave policies, working-hour records and the systems used to manage absences and payments.
Organisations with employees across multiple countries may also need to consider how New Zealand’s requirements fit within their wider HR and payroll operating model. Local rules will still need to be applied accurately, even where payroll is managed through a centralised system.
Existing leave balances and records will be relevant to the transition. Employers should continue to meet their current obligations under the Holidays Act, including addressing any outstanding errors or underpayments, while planning for the new framework.
Employers and payroll providers should use the transition period to:
The new rules will apply from the beginning of each employee’s first pay period starting on or after 6 August 2028. Employment agreements must be brought into compliance with the Act within the first year. During the transition, if an agreement has not been updated and provides a less favourable entitlement than the new law, the more favourable entitlement must be provided.
Preparing in advance will give employers time to assess the impact on their workforce, make the necessary system and agreement changes, and test payroll processes before the new requirements take effect.
For further guidance on payroll, employment legislation, leave entitlements and compliance in New Zealand, visit our New Zealand Global Insights section on the activpayroll website.
Managing leave entitlements, payroll calculations and employment compliance across multiple jurisdictions requires a clear understanding of local legislation and its impact on international workforce operations.
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