Holidays Act
Employment Leave Bill: What Employers Need to Know
September 24, 2025
A proposed Employment Leave Bill is making its way through Parliament and may replace the Holidays Act 2003, changing how leave entitlements are handled in New Zealand.
While nothing has passed into law yet, it’s worth getting across the direction of these changes and how they may affect payroll.
We’ve pulled together a clear overview of the key proposed changes below, and in our upcoming webinar, we’ll walk through what they could mean for payroll and employers.
Join our free webinar: Register now
Friday 17 April | 11:00am NZT
Can’t make it? Register anyway and we’ll send you the recording.
So, what’s being proposed?
The big shifts are focused around how leave is earned and processed.
The proposed system moves away from weeks and days in favour of hours. Leave would be accrued, taken, and paid in hours, with accruals beginning from the first day of employment.
At a high level, this approach is intended to bring more consistency, particularly for variable work patterns. It also means a change in how leave is managed in payroll.
Leave moves to hours
Under the proposal, leave would be calculated in hours rather than weeks or days, based on an employee’s standard hours of work. Accrual would begin from the employee’s first day of employment as follows:
Annual leave would accrue at 0.0769 hours per standard hour worked
Sick leave would accrue at 0.0385 hours per standard hour worked, up to a cap of 160 hours
Standard hours become key
A key concept in the Bill is that of standard hours, which are the hours an employee is required to work under their employment agreement. These hours would form the basis for leave accrual payments. Where work patterns are not clearly and explicitly defined in the employment agreement, they must be determined using:
a work roster, or
the employee’s notional roster
This places more emphasis on having well-defined and documented working arrangements, but also provides clear avenues in cases where that isn’t possible.
A Leave Compensation Payment (LCP) for additional and casual hours
Instead of accruing leave on additional or casual hours, the Bill proposes a 12.5% leave compensation payment (LCP) on those hours worked. This would apply to:
hours worked above standard hours (additional hours), and
casual hours (where there are no standard hours for the role)
The intention is to provide a consistent approach for hours that fall outside standard working arrangements.
Extra hours attract the same 12.5% (for waged and, in some cases, salaried)
When a waged employee works hours above contracted hours, those extra hours don’t accrue leave. Instead, you pay the 12.5% leave compensation on those hours. For salaried staff, if extra hours are already compensated by salary, nothing further is due; if you also pay additional wages for those hours, the 12.5% applies to those paid-extra hours.
A single hourly rate for leave pay
Leave would be paid using a single hourly rate, generally determined from base pay and fixed allowances, rather than via multiple calculation methods. Variable payments (such as bonuses or commission) would generally not be included in this rate. This replaces the current Act’s need for tracking and applying multiple calculation methods.
Alternative leave would accrue hour-for-hour
For public holidays, where an employee works on a day that would otherwise be a working day, they would earn 1 hour of alternative leave for each hour worked. This aligns with the broader shift to an hours-based system.
What could this mean for employers?
If the Bill goes ahead as currently worded, the biggest shift is moving to an hours-based approach for leave.
For employers, this would involve:
working with hours-based leave balances instead of days or weeks
ensuring clear categorisation of work hours in employment agreements
understanding how the 12.5% leave compensation payment applies
updating payroll processes
ensuring payroll systems support the new rules and handle leave correctly
using rostering or time-tracking tools where needed to capture work patterns accurately
The overall impact will vary depending on workforce structure, particularly for businesses with variable or shift-based hours.
When would this take effect?
The Bill is not yet law.
If passed, it is expected to include a 24 month implementation period (up to 10 years for the education sector) after enactment, before the new system replaces the current legislation. For now, employers must continue to comply with the Holidays Act 2003.
Want a clearer walkthrough?
While the direction is clear, there are a few areas worth understanding in more detail.
In our upcoming free 30-minute webinar, we’ll walk through:
The key proposals in the Employment Leave Bill
How it compares to the current Holidays Act
What the changes could mean for payroll and employers
Friday 17 April | 11:00am NZT
How PayHero will support you
If the Bill passes, PayHero will be updated to support the new leave rules.
We’ll also provide clear guidance well in advance of any changes, so you understand what’s happening and what (if anything) you need to do.
