For more than two decades, the Holidays Act 2003 has been one of New Zealand’s most challenging pieces of employment legislation. From complex calculations to inconsistent interpretations, many organisations have been struggling to apply the law correctly - a stark liability for lots of them. Often not realising it until remediation was required.

Now, the Government has signalled an overhaul of this legislation. The proposed Employment Leave Act is set to simplify the mechanisms behind how leave is provided, calculated and paid, while creating fairness across the system. While the final legislation is still to come, the direction is clear: leave will become more transparent and aligned with how businesses operate today.

Why reform is needed 

While the intention behind the Holidays Act 2003 was grounded in a real need to support workers, the reality of this legislation is anything but simple. Payroll teams have grappled with ambiguous definitions, various leave calculation formulas, variable hours, and allowances - all of which have led to widespread non-compliance and large-scale remediation programmes.

The Government’s proposed replacement aims to address these long-standing problems by creating:

• Clearer rules that reduce ambiguity
• Simplified calculations that minimise payroll errors
• Fairer entitlements for part-time, variable, and irregular workers
• Better transparency for employees accessing leave information

This is not just a legislative update. It is a structural redesign intended to build a more modern, responsive leave system.

Key proposed changes

While details will evolve as the Bill progresses, several key themes have already been outlined.

1. Annual leave and sick leave will accrue in hours

Under the proposal, annual leave and sick leave will accrue on contracted hours from day one of employment. This creates a more consistent model for the thousands of workers who do not work a standard five-day week.

It also introduces:

• The ability to take leave in partial hours
• A pro-rated sick leave model that reflects actual hours worked
• A more intuitive link between hours worked and leave earned

This is one of the most impactful changes, particularly for organisations with complex rosters or variable-hour employees.

2.  Leave Compensation Payment of 12.5% for “Casuals” and for any employees who are paid additional hours worked.

Instead of the current “8% pay-as-you-go” model, casual workers and employees who are paid for additional hours worked above their contracted hours will receive a 12.5% leave compensation payment on those hours.

This aims to provide:

• Greater fairness for workers with fluctuating hours
• A single, predictable percentage that simplifies payroll
• Improved clarity about when employees are entitled to paid leave versus compensation

Organisations with high volumes of casual or seasonal staff will need to model the financial impact of this change.

3. A Single Leave Pay calculation method

The existing legislation has various leave calculation methods that may be applicable depending on when leave is used/paid out. This has been a long source of payroll errors. Under the proposed framework, there would be one standardised way to calculate leave payments.

That means:

• A consistent hourly leave-pay rate
• Fixed allowances continue to be paid in full when leave is taken
• Commissions, bonus payments and irregular versus regular payments, no longer impact leave calculations

For payroll teams, this is expected to significantly reduce complexity - but it will require updates to systems and processes.

4. Clearer Public Holiday and Alternative Holiday rules

A new “Otherwise Working Day” test will make it easier to determine whether an employee is entitled to a paid public holiday or be provided with an alternative holiday credit when it is unclear. Alternative holidays will also move to an hourly basis.

This clarity is designed to reduce confusion for shift-based, on-call, and part-time staff, and help organisations apply public holiday entitlements more consistently.

5. Day-One Access to Certain Leave Types

Under the proposal, employees would gain immediate access to:

• Bereavement leave
• Family violence leave

Both would also be available in daily increments. This reflects a more compassionate approach to employee wellbeing and will require HR teams to revisit onboarding and entitlement communication.

6. Up to 25% of Annual Leave Can Be Cashed Up

The proposed framework allows employees to cash up to 25% of their annual leave balance per year, higher than current maximum. This provides workers with more flexibility, while still preserving the core purpose of ensuring adequate rest and recovery.

7. Mandatory Pay Statements and Details.

Employers will need to provide payslips which will need to show leave entitlements, and balances on every payslip. For employees, this means greater visibility. For employers, it elevates expectations of system accuracy and transparency.

The Big Picture

For employers, these proposed changes signal a move towards simpler, fairer, and more modern leave management. For employees, it means greater transparency, flexibility, and day-one access to important leave types.

While the legislation is still in draft form, organisations should start considering the impact on payroll systems, workforce planning, and communication strategies.

The overhaul of the Holidays Act is shaping up to be one of the most significant employment reforms in New Zealand in years - and those who prepare early will be best positioned to navigate change confidently and strengthen employee trust.