New Zealand: New proposal to replace the Holidays Act

Employer action code: Monitor

New Zealand’s Cabinet has approved policy proposals for new legislation to replace the Holidays Act 2003, aiming to simplify and modernize leave entitlements. Among other things, the proposals would introduce continuous accrual of annual and sick leave entitlements from day one of employment and provide more flexibility for taking or cashing out leave. For years, employers lobbied successive governments to address the complexities and uncertainties of the Holidays Act with regard to annual and other leave entitlements, and for years successive governments have been unable to do so because of the difficulties involved in reducing those complexities without unduly disadvantaging employees or employers.

Key details

The proposed changes include:

• Annual leave would accrue in hours from the start of employment at 0.0769 (4/52) hours of leave per contracted hour worked and during periods of paid absence (e.g., family or bereavement leave), resulting in four weeks’ leave per year if contracted hours do not change. Leave hours would be “banked” with no balance adjustment if contracted hours change. The current annual leave entitlement under the Holidays Act 2003 is the same (four weeks) but becomes available in full after 12 months of service, and leave balances adjust for changes in contracted hours
• Employees would be allowed to request cash compensation of up to 25% of their annual leave balance as of their most recent employment anniversary. Currently, employees can request compensation of up to one week of their balance in any 12-month period
• Sick leave would accrue in hours on the same basis as annual leave but at a rate of 0.0385 (2/52) hours of leave per contracted hour of work or paid leave, up to a maximum balance of 160 hours, available for use on a partial-day basis. Under the Holidays Act 2003, employees are currently entitled to 10 days of paid sick leave after the first six months of service and after every subsequent 12-month period, subject to a 20-day cap, and leave may be taken only in whole days
• Employees would have first day of employment rights (currently only after six months) to bereavement leave (three days for a close family member; one day for a non-relative) and family (domestic) violence leave (10 days per year). Employees would be allowed to take partial days for such leaves (currently a partial day is counted as a whole day of paid leave)
• Pay during statutory paid leaves would be based on an hourly leave pay rate with any fixed allowances payable in full. This would replace the current complex system of calculations and comparisons intended to reflect pay for non-contracted hours and other variable payments, which results in outcomes such as annual leave taken soon after parental or volunteer leave being paid at a lower rate. Fixed allowances would be defined as those that do not vary in value and that the employer is required to pay to the employee each pay period during leave
• Employers would be required to include an itemized statement of leave accrued in each pay cycle in employees’ pay statements
• Hours worked beyond contracted hours would not accrue annual or sick leave, but employees would be entitled to a payment of 12.5% of their ordinary hourly rate of pay for each such additional hour. The same would apply to salaried workers only if they have a separate agreement with their employer on compensation for work in excess of contracted hours

Employer implications

The changes would not affect existing overall leave entitlements for many employees but would, in principle, make the entitlements more predictable, flexible and easier to understand and simplify administration for employers. Few of the companies surveyed by WTW provide leaves in excess of minimum requirements, which is not expected to change if the proposals are enacted. The government expects to submit a draft bill to parliament in early 2026, after review by a Select Committee and public consultation. Under the proposals, new legislation would take effect 24 months after enactment, to allow time for employers and providers to update leave policies and payroll systems.

Contacts

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Nick Torjussen

Head of Health & Benefits, New Zealand

email Email phone +64 2 1909 587

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Melodi James

Employee Relations Services Lead, Workplace Risk

email Email phone +61 2 8046 1450

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Adam Hall

Senior Director, Employee Experience

email Email phone +61 3 9698 9324

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Daisy Chan

Associate Director, Work & Rewards

email Email phone +61 4 1953 4128

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