‘There's a whole lot of processes that will come into place that are quite different to what people in New Zealand are used to at the moment and have been used to for a long time’
New Zealand HR and payroll teams have just two years to rebuild how they calculate, record and pay staff leave, after the Employment Leave Act 2026 received royal assent on 6 August 2026.
The new law is set to replace the Holidays Act 2003 from Aug. 6, 2028, a change Bell Gully partner Rachael Brown says employers cannot afford to leave until the last minute.
Hours-based accrual replaces weeks-based system
The Act shifts New Zealand from a weeks-based leave entitlement system to accrual measured in hours, applied against an employee's "standard hours" from their first day of work. The legislation also creates new categories of standard, additional and casual hours, each with different accrual and payment rules.
"The Employment Leave Act is now going to change everything to be an hours-based accrual, which – rather than doing a whole lot of different calculations – is going to be a really significant change in New Zealand," Brown told HRD.
Casual workers will not accrue leave under the new framework. Instead, they will receive a 12.5% pay loading in place of annual and sick leave accrual, according to the Ministry of Business, Innovation and Employment (MBIE). Employees without fixed schedules, including many gig workers, will need a "notional roster" established to determine their standard hours, said Brown.
"There's a whole lot of processes that will come into place that are quite different to what people in New Zealand are used to at the moment and have been used to for a long time.”
Public holiday entitlements will also change under a new "Otherwise Working Day" test, replacing the current calculation under the Holidays Act.
Employers warned to start preparing immediately
Brown said the scale of the changes means employers should treat the transition as a formal project involving finance, HR, payroll, IT and legal teams, rather than a task left to HR alone.
"We do think it's really important to start preparing now and to treat it as quite a significant project," Brown said, adding that early conversations with payroll providers are critical because system reconfiguration takes time.
Brown said breaches of the new rules could carry financial penalties, which she put at around $20,000. She also pointed to reputational risk for employers who fail to comply on time.
One unresolved issue, Brown said, is how the new statutory minimums will interact with existing contractual leave entitlements that exceed legislative requirements. "It's not super clear quite what happens when you have potentially contractual entitlements that sort of sit outside the legislative regime and how those will interact," she said, adding that litigation may ultimately be needed to resolve some cases.
MBIE has said that employers must continue meeting current Holidays Act obligations, including remediating historical underpayments, throughout the two-year transition period, and has said further detailed guidance for payroll providers and employers will be released in the coming months.
Brown's closing message to HR professionals was blunt. "Yes, it is two years away, but there's a lot to do in two years' time.”
