If you have ever tried to calculate holiday pay and ended up with three different answers, you already understand why this change is happening. The Holidays Act 2003 is famously hard to get right, and New Zealand is set to replace it with a new framework: the Employment Leave Bill.

Here is the simple version of what it is, what is changing, and when you will actually need to do something about it.

What is the Employment Leave Bill?

The Employment Leave Bill will replace the Holidays Act 2003 with a leave system designed to be simpler and clearer. The aim is to give employers and employees more certainty about entitlements and obligations, and to cut down the widespread non-compliance that has built up under the current Act. Employers have long struggled to apply the Holidays Act correctly, which has meant many employees have not received the leave and pay they were entitled to, and fixing those errors has been costly.

This is proposed legislation, not the law today. Until it comes into force, the current Holidays Act 2003 still applies, and you should keep meeting your obligations under it.

What is actually changing?

The Bill is a genuine rebuild, not a tidy up. The headline changes are:

• Leave will accrue in hours from day one. Annual leave and sick leave will build up continuously as hours worked, rather than arriving as lump sums on an anniversary. Annual leave will accrue at a minimum of 0.0769 hours per standard hour worked (the equivalent of four weeks a year), and sick leave at 0.0385 hours per standard hour, capped at 160 hours.
• One leave pay rate. A single hourly leave rate will replace the current mix of calculations (average weekly earnings, ordinary weekly pay, relevant daily pay and average daily pay).
• A new Leave Compensation Payment (LCP). Casual and additional hours will attract a payment of 12.5% of the employee's ordinary hourly rate, instead of accruing leave.
• A clearer public holiday test. A new calculation for the Otherwise Working Day test will help decide when a public holiday is a paid day off when it isn’t clear from the employee’s work pattern.
• Alternative holidays in hours. These will accrue at one hour for every hour worked on a public holiday, rather than as whole days.
• Bereavement and family violence leave from day one. These will be available to all employees from their first day.
• The parental leave override is gone. No more reduced rate for annual leave after parental leave
• Mandatory pay statements. Employers will need to provide a pay statement every pay period.

When does it take effect?

Not tomorrow, so there is time to prepare properly. Once the Bill receives Royal assent, there will be a 24 month period before it comes into force, expected to be around 2028 (the exact date is still to be confirmed). Everything will come into force at once, with no option to adopt the changes early. Until then, the current rules apply.

What should employers do now?

There is no action required today, but this is a big shift in how leave works, so it pays to get familiar with it early rather than in the final rush. The employers who will have the smoothest transition are the ones whose employment agreements, hours and payroll records are accurate and up to date, because so much of the new system hinges on getting an employee's standard hours right.

The other big factor is your payroll system. Converting leave, applying a single leave rate, and handling the new Leave Compensation Payment is exactly the kind of behind-the-scenes complexity that good payroll software should absorb for you.

That is the part we are already on. PaySauce is built on a modern payroll rules engine, and we have designed for these changes ahead of time so that when the new rules land, your payroll keeps doing what it should: just working. Get in touch or see how PaySauce works if you want payroll that is ready for what is coming.

Employment Leave Bill FAQs

When will the Employment Leave Bill take effect?
It is expected to come into force around 2028, following a 24 month implementation period after Royal assent. The exact date is still to be confirmed, and the current Holidays Act 2003 applies until then.

Do employers need to do anything now?

No immediate action is required, because the current rules still apply until the new Act comes into force. That said, a little groundwork now will make the eventual switch much smoother. The new system leans heavily on each employee's standard hours, so the best preparation is making sure your employment agreements, recorded hours and payroll records are accurate and genuinely reflect how your people work.

It is also worth starting to think about standard hours for anyone who does not clearly have them yet. That might be employees whose hours have quietly settled into a regular pattern over time, or arrangements that were never really pinned down in writing. Getting a clear, honest picture of who works what will put you in a strong position when the rules change, and it is good practice regardless. We will get into all of this, including how standard, additional and casual hours will work and where notional rosters fit in, in our upcoming articles on hours.

What is the biggest change for payroll?
Leave will accrue in hours from day one rather than as lump sum entitlements on anniversaries, and a single hourly leave rate will replace the current mix of holiday pay calculations.

Will casual employees still accrue leave?
Casual hours will not accrue annual and sick leave. Instead, a Leave Compensation Payment of 12.5% of the employee's ordinary hourly rate will be paid on those hours.

Want to go deeper?

We have been getting ready for these changes for a while, so we have pulled together everything we know so far about the Employment Leave Bill in one place.

For the full detail, head to our Employment Leave Bill help centre. It covers each change, from how leave will accrue in hours to the new Leave Compensation Payment, public holidays, pay statements and more.

And if you are a PaySauce customer, you can go one better. Use the chat feature inside PaySauce to ask anything you like about the new leave rules. Just make it clear you are asking about the new leave entitlements or the Employment Leave Bill (for example, "how will annual leave accrue under the new leave rules?"), and you will get answers drawn specifically from our dedicated guidance on the changes, rather than the current rules. Ask away, that is what it is there for!

More to come

This is very much a picture that will keep filling in. MBIE has said it will roll out further guidance and resources over the transition period, including technical guidance for payroll providers, which means more detail will land steadily between now and when the new rules take effect.

We will keep this content up to date as things firm up, and share more as we go, so you can expect the detail to arrive in manageable pieces rather than all at once right before the deadline. That is the job of a good payroll provider: to stay across every change and get the systems ready behind the scenes, so you are supported through the transition instead of left to decode legislation on your own!

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