Employment Leave Act: it’s official, now what do you need to know?
The two-year countdown to major payroll system changes has begun. The Employment Leave Act 2026 has received Royal Assent, bringing one of the most significant reforms to New Zealand's minimum leave entitlements in decades.
The new rules take effect in two years, which means payroll systems need rebuilding, employment agreements need updating, and leave calculation practices are fundamentally shifting.
The good news: the new framework is simpler and clearer than what you're working with now. The challenging news: getting there requires planning, and the time to start is now.
What are the key changes for employers?
We have outlined some of the key changes along with what some changes may mean to your business.
1. Moving to an hours-based accrual system
Annual and sick leave will accrue on every standard hour, at rates of 0.0769 and 0.0385 per hour, respectively. Leave will not accrue on standard hours during accident compensation leave or contractual unpaid leave, or during paid contractual leave where the employee and employer agree that it will not accrue.
The Act defines standard hours and requires them to be specified in an employment agreement, a work roster or a notional roster.
Key impacts:
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No more recalculations of an employee’s leave balance where a permanent change in a working pattern has occurred.
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Leave without pay no longer impacts an employee’s anniversary date.
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No more considerations whether annual leave entitlements were or were not earned on parental leave.
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New concepts to understand and potentially changing practices to implement notional rosters if required.
2. Introduces a Leave Compensation Payment (LCP)
The new Leave Compensation Payment will be prescribed at 12.5% and will apply to casual employees and to paid additional hours worked by other employees.
The new Act provides a clearer definition of a ‘casual’ employee and what additional hours the LCP will apply to.
Key impacts:
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No more ‘intermittent and irregular’ testing for ‘casuals’ every 12 months to ensure they met the criteria to receive 8% holiday pay each pay period.
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No more rolling ‘hours test’ for casuals to test if an employee should receive sick leave, bereavement leave or family violence leave entitlements.
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Requires the ability to identify additional paid hours of work for some employees as these hours will be subject to LCP.
3. Single leave calculation method for leave
The leave rate depends on how the employee is paid:
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Salaried: Employee's hourly rate
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Waged: Employee's lowest hourly rate
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Commission (partial or full): Greater of hourly rate or minimum wage
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Piece work (partial or full): Greater of (hourly rate + average piece work rate) or minimum wage
Key impacts:
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No more exceptions applied to leave rates for employees who return from parental leave.
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No more consideration of what are ‘gross earnings’ or ‘ordinary gross earnings’ for the purposes of the leave rate calculations.
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No more decision making whether an employee should be paid Relevant Daily Pay or Average Daily Pay.
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Ensuring the right identification of the employee type to apply the correct leave rate to.
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No more 8% calculation since last anniversary when calculating termination pays. Leave balances will be paid out at the relevant hourly rate.
4. A new otherwise working day test
Where an employment agreement does not specify the days or pattern of work an employee will do, a 50% threshold test is to be used to determine whether a public holiday is due.
Key impacts:
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Less ambiguity of what factors may outweigh others to determine whether a day is an otherwise working day.
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Provides certainty that using a 50% threshold test will satisfy compliance in determining whether an employee is entitled to a public holiday.
5. Employees can access leave entitlements from day 1
All employees will have access to bereavement leave and family violence from the start of their employment. These entitlements will remain in days.
For those employees eligible to receive annual leave and sick leave, they also will be able to take their entitlements as soon as it is earned.
Key impacts:
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Employees no longer need to be employed for a certain amount of time before accessing leave.
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Employees will have rights to take leave from day one of employment.
6. Changes to the maximum cash ups that can be requested
Employees can request up to 25% of their annual leave balance as at the start of an anniversary year and for alternative leave entitlements as soon as it is earned.
Key impacts:
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No more restrictions for employees to request only one week of annual leave cash up from the last entitlement year.
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No more checking if 12 months has passed since an employee earned an alternative holiday before having the ability to cash up the leave.
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Employees can request larger amounts of leave to be paid out and where agreed, it can help reduce liabilities.
7. Mandatory payment statements.
All employees must have access to a payslip that contains specific information as per the new Act, in addition to keeping leave records.
Key impacts
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Not providing a pay statement will be an infringeable offence where a fine could be given.
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Less flexibility for businesses in determining what they would like to display on payslips from a leave perspective– e.g. leave balances must be shown.
How will current leave transition?
Existing leave balances provided under the Holidays Act 2003 will be converted when the Employment Leave Act takes effect, using the conversion methods set out in this Act.
What can you do now?
Now is a good time to familiarise yourself with the changes and assess their impact on your business, including your employment agreements and workplace policies.
MBIE have also prepared a key change fact sheet - Key changes to the employment leave system
Remember that these changes will take effect in two years from Royal Assent. The new Act does not allow early adoption.
What is ReadyTech doing now?
ReadyTech is assessing the changes and their potential impact on our products so that we can plan for a smooth implementation.
We will keep you informed on progress and will provide clear guidance on any actions you may need to take.
Next steps
MBIE is expected to release further guidance in due course to help businesses prepare for the changes. This information will be available on their website - www.employment.govt.nz.
For official legal advice, visit MBIE’s website on the Holidays Act reform here - Holidays Act reform: Employment Leave Bill | Ministry of Business, Innovation & Employment
N.B. Please note that this article does not constitute legal advice. It represents ReadyTech's current understanding and is subject to change without notice. We strongly recommend that employers obtain independent legal advice relevant to their circumstances before implementing any changes based on this content.
