New Zealand's Biggest Employment Law Change in 20 Years — Is Your Business Ready?

The Holidays Act Has Been Replaced: What the Employment Leave Act 2026 Means for Your Business

If you employ staff, the rules for annual leave, sick leave, bereavement leave and family violence leave are all changing — and this time it's not a proposal. The Employment Leave Act 2026 received Royal assent on 6 August 2026 and replaces the Holidays Act 2003 from 6 August 2028.

Two years sounds like plenty of breathing room. It isn't. Payroll systems have to be rebuilt, employment agreements need attention, and staff will have questions long before 2028 arrives.

At Epplett & Co, we're already working through what this means for our clients. Here's your starting point.

What's Actually Happened

The Holidays Act 2003 has been a problem for two decades. It's complex, it's difficult to apply to anyone with variable hours, and it has caused widespread underpayment — including at large, well-resourced organisations with expensive payroll systems.

Rather than patch it again, the Government has replaced it. The Employment Leave Act 2026 was passed by Parliament and received Royal assent on 6 August 2026. It comes into force on 6 August 2028.

The two-year gap is deliberate. It gives payroll providers and employers time to make the changes their systems need.

One important point: you cannot adopt the new rules early, even if your payroll system is ready. Until 6 August 2028, you must keep applying the Holidays Act 2003 exactly as you do now.

What Changes in 2028

This is a genuine redesign, not a tidy-up. The main changes:

Leave will accrue in hours, from day one. Annual leave and sick leave will build up as you work, measured in hours against your standard hours — rather than arriving in a lump after six months (sick leave) or twelve months (annual leave). Alternative holidays move to hours-based accrual too.

A 12.5% payment on additional and casual hours. Instead of accruing annual and sick leave on those hours, employees receive a 12.5% upfront leave compensation payment.

Taking leave gets simpler. One hour of accrued leave is used for every hour taken off, and employees can take part days.

One pay rate for all leave types. The same hourly leave pay rate applies across the board, based on the employee's lowest hourly rate for the day the leave is taken. Fixed allowances keep being paid in full during leave. Annual leave taken after parental leave is paid like any other annual leave — which removes a long-standing sore point.

A clearer public holiday test. Public holiday entitlements will be based on a new, more straightforward "Otherwise Working Day" test.

The Three Types of Hours

The whole framework rests on splitting working hours into three categories. It's worth getting your head around these now, because they determine how leave accrues for each of your people:

• Standard hours — hours the employee is required to work under their employment agreement (excluding hours under an availability provision) and that you must pay them for.
• Additional hours — hours worked on top of standard hours, where you must make an additional payment for them.
• Casual hours — hours worked by an employee whose agreement doesn't require you to offer work, or require them to accept it.

If your workforce is mostly salaried people on fixed hours, this will be reasonably tidy. If you run a roster with casuals, seasonal staff or variable shifts — which describes a great many Hawke's Bay businesses — it's worth mapping your people against these categories early.

Historical Underpayments Don't Go Away

This one catches people out. The new Act doesn't wipe the slate clean.

If your business has underpaid holiday pay under the Holidays Act 2003, you still have an obligation to remediate it. Passing new legislation doesn't extinguish that. If you've had any doubt about your past calculations, the sensible time to look into it is now — not while you're mid-transition in 2028.

Employment Agreements

Your agreements will need to reflect the new framework eventually, and there's a transition window after commencement to get that done.

That said, we'd gently push back on the idea that you should rewrite everything tomorrow. MBIE is still publishing guidance and model material, and redrafting now risks doing the job twice.

What is worth doing right now is a stocktake: find your agreements, confirm you actually hold a signed copy for every employee, and read what they currently say about how leave is accrued, calculated and paid out on termination. If they're vague, outdated, or missing altogether, that's a problem regardless of 2028.

Talking to Your Team

Employees will hear about this — from the news, from friends, from a payroll email. Better that they hear it from you first.

You don't need all the answers yet. Something simple works: the leave rules are changing in 2028, nothing changes for you right now, we're across it, and we'll keep you posted. That's enough to head off the speculation that tends to fill a silence.

Your Checklist

Start now (2026)

• Keep applying the Holidays Act 2003. You can't switch early, even if you're ready.
• Contact your payroll provider and ask for their upgrade timeline. If they can't give you one, that tells you something.
• Do a stocktake of your employment agreements — locate them, check they're signed, read the leave clauses.
• Map your workforce against standard, additional and casual hours to see where the 12.5% payment will apply.
• Address any historical holiday pay underpayments. This obligation survives the new Act.
• Send your team a short, calm heads-up.

Through 2027

• Watch for MBIE guidance as it's released on employment.govt.nz.
• Test your payroll provider's update on real data before it goes live.
• Draft your agreement updates once model wording is available.

From 6 August 2028

• The new rules apply from the start of your first pay period beginning on or after that date — so the switch lines up with your pay cycle, not the calendar.
• Bring your employment agreements into line within the transition window.

How Epplett & Co Can Help

We're monitoring the guidance as MBIE releases it and translating it into plain language and practical steps. We can help you work through what the hours categories mean for your specific team, talk with your payroll provider about system readiness, flag where your agreements need legal attention, and think through how you communicate the change to staff.

This is exactly the kind of change where getting advice early costs far less than fixing it late.

If you'd like to talk through what this means for your business, get in touch with the team at Epplett & Co. We're based in Hastings and work with employers right across Hawke's Bay.

Contact us at www.epplett.co.nz or give us a call to arrange a time.

For the official material, see MBIE's Employment Leave Act page and Employment New Zealand's "Changes to leave coming in 2028" guidance.

This article is intended as general guidance only and does not constitute personalised tax, financial or employment law advice. Please contact Epplett & Co to discuss your specific situation.