One of the biggest shifts in the Employment Leave Bill is also one of the easiest to explain: leave will be earned by the hour, from day one. No more waiting for an anniversary for entitlements to land. Here is how accrual will work, and a couple of changes worth knowing about early.

As always, a quick reminder: this is future legislation, coming into force 6 August 2028. The current Holidays Act 2003 still applies until then.

Leave in hours, from day one

Under the Bill, annual leave and sick leave is accrued purely in hours, with no reference to weeks or days, and are also taken and paid in hours. The idea of "entitled" versus "not yet entitled" leave will disappear. Instead, leave will accrue continuously from an employee's first day, rather than arriving as a lump sum after a set period.

The minimum accrual rates will be:

• Annual leave: 0.0769 hours for every standard hour worked, which is the equivalent of four weeks a year for someone whose standard hours do not change.
• Sick leave: 0.0385 hours for every standard hour worked, up to a cap of 160 hours. Once the cap is hit, accrual pauses until the employee uses some of their stored sick leave. For someone working five days a week, that is the equivalent of 10 days a year.

The totals end up much the same as today. The difference is that leave builds steadily and is available from the start, rather than landing all at once.

The flow on impact is easier management and calculations of things like final pays, and a much easier to understand position of an employee’s current leave entitlement. 

Banked with no need to adjust

Here is a subtle but important difference. Today, leave is held in weeks, and what a "week" is worth shifts when someone changes their hours. Under the new system, accrued hours will be banked, and an hour of leave keeps its value no matter how someone's hours change later.

Take George, who works 40 standard hours a week for his first year, then drops to 20 hours a week to study. Under the current system, four weeks of leave taken in year one would be 160 hours, but the same four weeks taken after he moves to 20 hours a week would have quietly shrunk to 80 hours. Under the new system, George accrues 160 hours in his first year, and when he moves to 20 hours a week his balance stays at 160 hours and keeps growing. His employer will not need to recalculate his balance every time his pattern changes.

The ACC change 

Leave will keep accruing during many unworked periods, including paid leave and unpaid leave provided under legislation, such as parental leave, jury leave and volunteers leave. That is broadly the same as today.

The change to watch is when employees are away from work and receiving compensation from ACC. Under the new system, leave will not accrue while an employee is receiving accident compensation. It is an easy one to miss: someone on parental leave keeps accruing, for example, but someone away on ACC does not. Leave also will not accrue on unpaid leave that is not provided for by legislation.

Fixed term and casual employees

Fixed term employees with standard hours will accrue annual and sick leave from day one, just like permanent staff, and any untaken annual leave will be paid out at the end. That’s an important change from today’s position, where a fixed term of under 12 months can be paid annual leave on a pay-as-you-go basis. Because entitlement is now continuous, there’s no real need for fixed term employees to have the pay-as-you-go alternative.

Casual hours will not accrue annual or sick leave. Instead, the Leave Compensation Payment (LCP) will be paid on those hours. This will be 12.5% of their earnings - more detail in our leave payments article.  

What should employers do now?

No immediate action is required, because the current rules still apply until the new Act comes into force. The most useful preparation is making sure your records of each employee's standard hours are accurate, since accrual will be tied directly to those hours. It is also worth getting familiar with the ACC exception and the fixed term and casual changes, because they work quite differently from today. We cover all of this, including taking leave, cashing up, and how parental leave is treated, in far more detail in our help centre.

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.

Want to go deeper?

For the full detail, head to our Employment Leave Bill help centre. It covers accrual rates, taking leave, the rules during unworked periods, fixed-term and casual employees, cashing up and more, all in plain English.

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.

Leave accrual FAQs

How will annual and sick leave accrue under the Employment Leave Bill?
Both will accrue in hours, continuously, from an employee's first day. Annual leave will accrue at a minimum of 0.0769 hours per standard hour worked (about four weeks a year), and sick leave at 0.0385 hours per standard hour, capped at 160 hours.

Will leave keep building up during parental leave and ACC?
Leave will keep accruing during parental leave, jury leave and volunteers leave. It will not accrue while an employee is receiving accident compensation, which is a change from the current position.

Do casual employees accrue leave under the new system?
No. Casual hours attract the Leave Compensation Payment instead of accruing annual and sick leave. Casual employees will still get bereavement and family violence leave from day one.

When will these changes take effect?
It comes into effect 6 August 2028

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