Global Compliance – New Zealand

New Zealand: Proposed Reforms to the Holidays Act 2003 

The New Zealand Government has announced a comprehensive reform of the Holidays Act 2003, intended to simplify the calculation of leave entitlements and promote greater fairness, transparency, and consistency across various forms of employment. The proposed amendments will introduce substantial changes to the manner in which annual, sick, and other categories of leave are accrued, taken, and compensated. 

A transition period of 24 months has been proposed following the enactment of the Bill. allowing employers and payroll providers adequate time to implement the new requirements. The Bill is expected to be passed by early 2026, with the revised Holidays Act likely to take effect around early 2028, depending on when the legislation is passed. 

Key changes are as follows:  

Annual Leave  

Currently, employees are entitled to four weeks of annual leave after completing 12 months of continuous employment. Leave is granted as a lump-sum entitlement rather than accruing progressively throughout the year. 

Entitlement does not accrue during periods of unpaid leave (except where the absence is due to sick leave, bereavement leave, or family violence leave).

Employees are permitted to cash up one week of annual leave in each 12-month entitlement period. 

Proposed Changes 

Under the reform, annual leave will accrue progressively from day one of employment based on actual hours worked at a rate of 0.0769 hours per hour worked (equivalent to 4/52). 

Key details include: 

• Leave will continue to accrue during periods of paid leave, parental leave, and jury or volunteer service, but will not accrue during unpaid leave or while the employee is receiving accident compensation. 
• Leave balances will be recorded in hours instead of weeks and will remain fixed even if the employee’s contracted hours change. 
• Leave may be taken in hourly increments, allowing alignment with the employee’s rostered or contracted hours. 
• Employees may request to cash up to 25% of their accrued annual leave balance, as at their last employment anniversary, in any 12-month period (an increase from the current limit of one week). 

Sick Leave 

Currently, employees become entitled to 10 working days of paid sick leave after completing 6 months of continuous employment with the same employer. This entitlement renews every 12 months, with a maximum accumulation of 20 days, and is currently taken in full-day increments. 

Proposed Changes 

Under the new framework, sick leave will accrue from day one at a rate of 0.0385 hours per hour worked (2/52), up to a maximum cap of 160 hours. 

• Accrual will continue during the same unpaid and paid periods applicable to annual leave. 
• Sick leave may be taken in hourly increments, introducing greater flexibility for part-time, variable-hours, and casual employees. 

Bereavement and Family Violence Leave 

Currently, employees are entitled to bereavement leave and family violence leave only after completing 6 months of continuous employment. Bereavement and family violence leave must be taken in full-day entitlements. 

Proposed Changes 

Under the reform, these entitlements will apply from the first day of employment. Employees may take part-day leave for these purposes and may also use it on the same day as sick leave if circumstances overlap.  

Public Holidays 

Currently, employees are entitled to paid public holidays and alternative holidays only on days that qualify as “Otherwise Working Days” (OWDs). 

“An OWD is defined as a day the employee would normally have worked had the public holiday, sick leave, or other leave not occurred.” 

Proposed Changes 

Under the reform a new statutory OWD test will be introduced for employees who do not have fixed working patterns. 

A day will be considered an OWD if the employee has worked that specific day of the week in at least 7 of the preceding 13 weeks.  

Alternative Holidays 

Currently, employees who work on a public holiday that is an OWD are currently entitled to one full alternative day off, regardless of the number of hours worked. 

The alternative day must be taken on another OWD and may be cashed up after 12 months if unused. 

Proposed Changes 

Under the reform, employees will accrue alternative holidays on an hour-for-hour (1:1) basis for every hour worked (or required to work, if called in) on a public holiday. 

These hours can be taken on any day that could otherwise have been worked under the employee’s agreement and may be cashed up at any time.  

Leave Payments 

Currently, calculating leave payments involves comparing various pay averages (such as ordinary weekly pay and average weekly earnings). 

This process often results in administrative complexity and inconsistent outcomes. Employees taking annual leave soon after parental or volunteer leave may also receive reduced pay due to override provisions. 

Proposed Changes 

Under the new system, all leave types will be paid at a consistent hourly leave pay rate determined by: 

• The base hourly pay applicable on the day of leave and include the average of any piece-rate earnings, where relevant; 

• Fixed allowances will continue to be paid in full during leave; and 

• Annual leave taken immediately following parental or volunteer leave will be paid at the employee’s normal rate, addressing the current pay disadvantage. 

Leave Compensation Payments 

Currently, employers and employees may agree to a “pay-as-you-go” arrangement, where 8% of gross earnings is paid instead of accruing annual leave. This applies mainly to irregular or fixed-term employment under 12 months. 

Proposed Changes 

The reform replaces the existing model with a Leave Compensation Payment (LCP) equal to 12.5% of the employee’s ordinary hourly pay rate. 
This payment will apply: 

• To all hours worked by casual employees, and 

• To additional hours worked by other employees (unless already covered by salary). 

• This replaces the accrual of annual and sick leave for those specific hours. 

• Fixed-term employees, however, will now accrue leave from day one, removing reliance on pay-as-you-go arrangements and aligning their entitlements with those of permanent employees.