New Zealand has enacted a significant change to its employment leave framework.
The Employment Leave Act 2026 passed its third and final reading in the New Zealand Parliament and received Royal Assent on August 6, 2026. The legislation will replace the Holidays Act 2003 with a new hours-based framework intended to simplify managing annual leave, sick leave, public holidays, and other leave entitlements.
Importantly, nothing changes for companies or workers yet. The current Holidays Act 2003 rules remain in effect until the new legislation commences.
The new framework will take effect August 6, 2028, two years after Royal Assent, giving businesses time to prepare their payroll, timekeeping, employment agreements, policies, and worker communications.
Under the current Holidays Act 2003:
The current framework has been criticized as complex, particularly when it comes to individuals that work irregular schedules, variable hours, or a combination of standard and additional hours.
The Employment Leave Act is intended to simplify these rules by moving much of the system toward an hours-based approach.
The new framework will change how employers calculate, track, and administer several types of leave.
Under the current Holidays Act, workers generally become entitled to four weeks of annual holidays after 12 months of continuous employment.
Under the new framework, annual leave will instead accrue in hours from the beginning of their engagement, based on a worker’s standard hours of work.
This represents a significant change in how leave balances are tracked and administered.
Statutory leave rights remain, but the mechanism used to accrue, track, and take leave will change.
The new framework will also move sick leave to an hour-based accrual model.
Rather than relying on the current eligibility-based annual entitlement structure, sick leave will accrue in hours beginning on the worker’s first day, based on the worker’s standard hours.
This will make leave administration more consistent for individuals working different schedules and reduce some of the complexity associated with determining leave entitlements under the current system.
One of the goals of this reform is to make leave easier to administer when workers work nontraditional or variable schedules.
Under the new framework, workers will generally use one hour of leave for each hour of leave taken.
Moving away from a system that relies heavily on weeks, days, and eligibility calculations is intended to make leave balances easier for everyone to understand and administer.
The new framework will also distinguish between a worker’s standard hours, additional hours, and casual hours.
For additional and casual hours covered by the new rules, workers will generally receive a 12.5% upfront leave compensation payment in lieu of accruing annual and sick leave on those hours.
This distinction will be particularly relevant for workers whose schedules fluctuate or who regularly work hours outside their standard working pattern.
Payroll and timekeeping systems will need to be configured appropriately to distinguish between these categories of hours and apply the correct leave treatment.
Public holiday administration is another area that will change.
Under the current framework, companies generally need to determine whether a public holiday falls on a day that would otherwise have been a working day for the worker.
The new framework will introduce a clearer "Otherwise Working Day" test for determining public holiday entitlements.
Alternative holidays will also move toward an hours-based accrual approach.
For companies utilizing workers with variable schedules, having accurate records of standard and additional hours will therefore remain important.
The new framework will also provide greater transparency around leave and pay information.
Employers will need to maintain appropriate information regarding workers' pay and leave entitlements and ensure their payroll and recordkeeping systems can support the new requirements.
For businesses operating internationally, this reinforces the importance of having payroll and HR systems configured to meet New Zealand-specific requirements.
The main employment leave framework will take effect on August 6, 2028.
The Employment Leave Act 2026 received Royal Assent on August 6, 2026, and the Act provides for its main commencement two years later.
This transition period gives companies, payroll providers, HR teams, and other stakeholders time to prepare for the new system.
Until the new framework takes effect, companies must continue complying with the current Holidays Act 2003 requirements.
Employers do not need to begin administering leave under the new framework yet. However, the two-year transition period provides an opportunity to begin preparing for the changes.
As the commencement date approaches, companies should expect to evaluate areas such as:
Companies should also continue addressing any compliance issues arising under the existing Holidays Act rather than waiting for the new framework to take effect.
For companies that want to engage workers in New Zealand without establishing their own local employing entity, an Employer of Record (EOR) can provide a practical alternative.
An EOR can employ workers locally while managing key employment administration, including payroll, statutory leave, employment documentation, and other local compliance requirements.
This can be particularly valuable when employment laws are changing. An experienced local EOR partner can help manage the employment relationship in accordance with applicable New Zealand requirements.
At TCWGlobal, our New Zealand EOR services are designed to help companies engage workers in New Zealand and compliantly navigate the country’s local employment and payroll requirements.
As New Zealand transitions from the Holidays Act 2003 to the new Employment Leave Act 2026, we will continue monitoring the implementation of the new framework and helping clients prepare for the changes ahead.
For more information on New Zealand, check out our Country Hiring Guide.