The Holidays Act is gone: what the new leave law means for you
Parliament has repealed the Holidays Act 2003 and replaced it with the Employment Leave Act 2026. Leave will be counted in hours, not days, and will start building up from an employee’s first day at work. Employers get two years to prepare. Here is exactly what is changing — and, while your business paperwork is under review, one document every company with more than one owner should have.
In a nutshell
• The Holidays Act 2003 is repealed and replaced by the Employment Leave Act 2026.
• Annual and sick leave will accrue in hours, from an employee’s first day.
• Casual and additional hours earn a 12.5% payment instead of accruing leave.
• Employees can cash up to 25% of their annual leave balance each year.
• Employers have a 24-month transition — nothing changes overnight.
The Employment Leave Bill passed its third and final reading in Parliament on 29 July 2026. Once it receives Royal assent it becomes the Employment Leave Act 2026, repealing the Holidays Act 2003 in full. The changes do not take effect immediately — there is a 24-month lead-in so that businesses and payroll providers can make a careful, managed transition. Official guidance is being published through Employment New Zealand (MBIE).
Part one — the Holidays Act is gone: what actually changes
For more than 20 years, the Holidays Act 2003 forced employers to convert between hours, days and weeks to work out leave. It was so hard to apply that it led to hundreds of millions of dollars in payroll back-pay across the country, and years of argument over what counted as a “working day”. The Employment Leave Act 2026 counts leave in hours instead, and changes when it starts to build up.
What is changing
• Leave in hours, not days: annual and sick leave are measured and taken in hours, removing the “what counts as a working day” problem.
• Leave from day one: annual, sick, bereavement and family violence leave are all available from an employee’s first day — no more waiting 12 months for annual leave or six months for sick leave.
• Proportional accrual: annual leave builds up at 0.0769 hours for every hour worked — the same as four weeks a year, but earned steadily from the start.
• Casual and additional hours: hours worked outside an employee’s standard hours do not accrue leave; instead the employer pays a 12.5% “leave compensation payment” on those hours.
• Cash-up: employees can choose to cash up to 25% of their annual leave balance each year.
• Pro-rata sick leave: part-time employees get sick leave in proportion to their hours, rather than a flat entitlement that never quite fitted part-timers.
A real example: Sione’s café
Sione runs a Manukau café with eight staff — some full-time, some casual. Under the old law, he wrestled every fortnight with “relevant daily pay” and whether a casual’s shift counted as a working day. Under the Employment Leave Act, his full-timers accrue leave in hours from day one; when he rosters a casual for an extra Saturday shift, he simply pays an extra 12.5% on those hours instead of trying to work out leave. Once his payroll software is updated, the maths is meant to be far simpler. The catch: he has up to two years to get his systems and employment agreements aligned, and until then the current rules still apply.
What each side says
Employers and business groups have welcomed the change as the biggest improvement to leave in a generation. Labour and the Greens opposed it. Their concern is that part-time and casual workers could come out worse — a part-timer weighing up whether to work while unwell or lose pay, and workers whose extra hours are paid out at 12.5% rather than building into leave they can actually take. It is a genuinely two-sided debate, and the effects on different groups will be argued over for some time.
What employers should do now
1. Don’t panic — nothing changes immediately; you have a 24-month lead-in.
2. Talk to your payroll provider about their timeline to support the new hours-based system.
3. Review your employment agreements and leave policies so they will match the new rules before the transition ends.
4. Watch Employment New Zealand for official guidance as it is published. For detailed employment-law questions, use a specialist employment adviser.
Part two — the document co-owners forget
If the leave changes have you reviewing your business paperwork, there is one document many small companies never get around to: a shareholders’ agreement. Your company constitution and the Companies Act 1993 set the default rules — but they do not decide what happens when two owners fall out, one wants to leave, or one dies. That is exactly what a shareholders’ agreement is for.
A real example: Aroha and Deepak
Aroha and Deepak own a growing trades business 50/50 on a handshake. When Deepak’s circumstances change, and he wants out, there is no agreed way to value his shares or fund the buy-out — and no tie-breaker for the deadlock. A shareholders’ agreement written at the start would have set the price mechanism, the exit process, and what happens if an owner dies (often backed by life insurance), turning a potential court fight into a paperwork exercise.
Why it matters
• Sets how shares are valued and who can buy them if an owner leaves or dies.
• Provides a way to break deadlocks between equal owners.
• Lines up with the owners’ wills and estate plans, so a co-owner’s death does not derail the business.
The one thing most people get wrong
The new leave law does not change anything in your workplace tomorrow. The most common mistake we are already hearing is business owners thinking they must overhaul payroll right now — or, at the other extreme, ignoring the change entirely. Neither is right. You have a two-year runway, and the businesses that use it to get payroll, systems and employment agreements aligned early will avoid the scramble at the end.
What you can do — and where we can help
For the leave changes themselves, your payroll provider and an employment-law specialist are your first ports of call, and Employment New Zealand will publish the official detail. Where Ross Holmes Lawyers can help is the business housekeeping that sits alongside it: making sure your company records, your shareholders’ agreement and the owners’ wills and estate plans all line up, so a change in the law — or a change in your ownership — does not catch you out. We are not employment-law specialists; for employment advice we will point you to the right expert. Learn more about protecting your family, your home and your legacy.
Questions clients actually ask
When do the new leave rules start?
Not immediately. There is a 24-month transition so businesses and payroll providers can prepare. Until then, the current rules apply.
Do my staff get leave from day one now?
Yes. Under the new law, annual, sick, bereavement and family violence leave are all available from an employee’s first day.
What happens with casual or extra hours?
Those hours do not accrue leave. Instead, the employer pays a 12.5% leave compensation payment on them.
Can employees cash up annual leave?
Yes — up to 25% of their annual leave balance each year.
Does Ross Holmes Lawyers do employment law?
We focus on business, property, trusts, wills and estate law. For detailed employment advice, we will refer you to a specialist, but we can sort the company records, shareholders’ agreement and estate-planning paperwork that go alongside these changes.
Useful links
Beehive — leave reform announcement — the Minister’s statement.
Employment New Zealand — official guidance as the transition rolls out.
Holidays Act 2003 — the law being replaced (for reference during the transition).
One change to watch
The Act still needs Royal assent, and MBIE will publish detailed guidance and a firm commencement timeline through Employment New Zealand during the 24-month transition, when the exact start date and transitional rules will be confirmed. With a general election due in November 2026, a future government could also seek further change. We will update this post as the detail lands.
Talk to us about getting your company records, shareholders’ agreement and estate plan lined up before the new leave rules take effect — get an online quote today.
Disclaimer. This article is general information only and is not legal advice, and we are not employment-law specialists. Please obtain specific advice — including specialist employment advice for your workplace — before acting.
About the author
Ross Holmes is the Director of Ross Holmes Lawyers (Ross Holmes Virtual Lawyers Limited), a virtual New Zealand law firm serving families and small businesses in property and conveyancing, estate planning, personal law, business law, seniors law and estates. Ross writes the trust administration chapters of LexisNexis’ Law of Trusts (New Zealand). Learn more at rossholmeslawyers.com or get in touch via the contact page.
