The Employment Leave Act 2026: an interactive guide for NZ payroll
The short version
The Employment Leave Act 2026 received Royal assent on 6 August 2026 and replaces the Holidays Act 2003, with most leave and payment provisions taking effect on 6 August 2028. It moves annual and sick leave onto hours-based accrual, replaces alternative holidays with hours-based alternative leave, simplifies the Otherwise Working Day test, and introduces a new Leave Compensation Payment for additional and casual hours. There's a two-year window to get payroll systems ready, and a further year to update employment agreements.
Key dates
Nothing changes in your next pay run – the value of the next two years is preparation. The marker shows where today sits on the runway; select any milestone for detail.
Most provisions take effect
Most leave-entitlement and payment provisions replace the Holidays Act, applying from an employee's first pay period starting on or after this date. Employers cannot adopt the rules early.
The Act in five ideas
Five concepts drive everything under the new Act – each explored below.
Standard, additional or casual hours
See it in action →Every working hour is classified: standard (the employer may require them and must pay for them), additional (extra hours the employee can refuse), or casual (no obligation either way). Almost everything else in the Act follows from this classification.
Leave accrual
See it in action →Annual leave (0.0769) and sick leave (0.0385) build up in hours for every standard hour or part-hour, banked from day one – replacing the lump sums granted after 12 or 6 months today.
Leave Compensation Payment (LCP)
See it in action →At least 12.5% of the ordinary hourly rate, paid each pay period on additional and casual hours in place of accruing annual and sick leave on them.
Public holidays (OWD)
See it in action →A paid day off depends on whether the holiday falls on an Otherwise Working Day, decided by a clearer statutory test. Payment for hours actually worked applies whether or not the day is an OWD.
Alternative leave
See it in action →Replaces alternative holidays: working an OWD public holiday earns leave hour-for-hour for the time worked, rather than a whole day off regardless of hours.
Standard, additional or casual?
Almost everything in the new Act flows from how each hour is classified. Getting this right in your employment agreements is the single most important preparation step. Work through the questions to classify a set of hours.
Hours classifier
InteractiveDoes the employment agreement require the employer to offer work, and the employee to accept it?
The Leave Compensation Payment
Entirely new. A payment of at least 12.5% of an employee's ordinary hourly rate, paid each pay period in place of accruing annual and sick leave on additional and casual hours. It's shown as a separate line on pay statements.
LCP calculator
InteractivePer pay period
Annual & sick leave accrual
Instead of lump sums after a qualifying period, annual and sick leave accrue in hours from an employee's first day. Enter a standard-hours pattern to see roughly what accrues over a year.
Accrual estimator
InteractiveEstimated over 52 weeks
Public holidays & alternative leave
Whether an employee gets a paid day off – and whether working earns alternative leave – depends on whether the holiday falls on an Otherwise Working Day (OWD). Payment for hours actually worked applies either way. Walk the decision tree for a specific case.
Otherwise Working Day decision tree
InteractiveDoes the employee's agreement specify the days (or a pattern of days) they work?
What it looks like in practice
Two worked scenarios from MBIE's explainer make the shift concrete. Select one to expand.
Current system vs new system
Select a topic to compare the Holidays Act 2003 with the Employment Leave Act 2026.
Now – Holidays Act 2003
Four weeks provided as a lump sum after 12 months' continuous employment.
From 6 Aug 2028 – Employment Leave Act
Accrues in hours from day one at 0.0769 hours per standard hour or part-hour. Balances are banked, not scaled.
Source: MBIE, Key changes to the employment leave system, updated 7 August 2026.
What payroll teams should do now
Main commencement is two years away and you can't adopt the rules early – but transitional balances must be calculated and converted, so understanding your exposure early makes the change smoother. Tick these off as you go.
Getting ready for the Employment Leave Act?
Affinity will implement full compliance with the Employment Leave Act 2026 ahead of the 6 August 2028 commencement date – hours-based accrual, the new hourly leave payment framework, the Leave Compensation Payment, updated public holiday and alternative leave rules, and transitional balance conversion. Built into the platform, so you're not managing the transition by hand.
Frequently asked questions
What is the Employment Leave Act 2026?
New Zealand legislation that replaces the Holidays Act 2003. It received Royal assent on 6 August 2026, and most leave and payment provisions take effect on 6 August 2028 – moving annual, sick and alternative leave onto hours-based accrual, simplifying the public holiday test, and introducing a new Leave Compensation Payment. Bereavement and family violence leave remain days-based but can now be taken in part-days.
When does the Act come into force?
Most provisions take effect on 6 August 2028, applying from an employee's first pay period starting on or after that date. Limited enabling provisions took effect on 7 August 2026, and parental-leave payment amendments take effect on 1 July 2027. Until main commencement the Holidays Act 2003 applies in full – you cannot adopt the new rules early, even if you're ready.
Why is New Zealand replacing the Holidays Act?
The Holidays Act 2003 has proven difficult to apply correctly, leading to widespread non-compliance and costly remediation. Health New Zealand alone has paid around $961 million in Holidays Act remediation, affecting an estimated 90,000 current and 130,000 former employees, as reported by BusinessNZ in July 2026. The new Act is designed to be simpler, hours-based, and easier to apply consistently.
How much annual leave will employees accrue?
Annual leave accrues from day one at a minimum of 0.0769 hours per standard hour or part-hour – equivalent to four weeks a year for an employee whose hours don't change. Leave is banked in hours and doesn't scale automatically if standard hours later change. From their first anniversary, employees can request to cash up to 25% of the balance each 12-month period; the employer may decline.
How much sick leave, and is there a cap?
Sick leave accrues from day one at 0.0385 hours per standard hour or part-hour – equivalent to ten days a year for a standard five-day week – up to a 160-hour cap, unless a more generous entitlement is agreed. Once the cap is reached, accrual pauses until some balance is used.
Can leave be taken in part days?
Sick leave is taken in hours, so any part of a day can be taken. Bereavement and family violence leave remain days-based but can also now be taken in part days. Both are available from day one, including for casual-only employees.
What is the Leave Compensation Payment (LCP)?
A new payment of at least 12.5% of an employee's ordinary hourly rate, paid each pay period in place of accruing annual and sick leave on the relevant hours. It applies to qualifying additional hours of standard-hours employees and to every casual hour. Unlike today's 8% "pay as you go" option, LCP applies automatically to all casual hours under the Act's new definition. It's calculated on the ordinary rate only – not overtime, penal rates, commission or allowances.
What happens to a balance if hours change?
Under the new Act annual leave accrues and is held in hours. Existing balances do not adjust when the work pattern changes, although future accrual reflects the employee's new standard hours.
How will existing balances convert in 2028?
The Act includes transitional formulas to convert balances held in weeks and days into hours on commencement. For employees with standard hours, annual, sick and alternative holiday balances convert to hours and carry forward. For casual-only employees, existing annual holiday entitlements are paid out, alternative holidays converted, and sick leave not converted or cashed up.
Does this affect fixing historical underpayments?
No. Employers keep their existing obligation to correct historical Holidays Act underpayments. The new Act adds an optional statutory remediation process, alongside existing options, covering at least 6 August 2022 to 6 August 2028; detailed rules will be set by regulations that cannot take effect before 6 August 2028.
Will Affinity be compliant with the Act?
Yes. Affinity will implement full compliance ahead of the 6 August 2028 commencement – hours-based accrual, the new leave payment framework, the Leave Compensation Payment, updated public holiday and alternative leave rules, and transitional balance conversion. We'll keep customers updated as MBIE releases further technical guidance.
Sources & further reading
- Holidays Act reform – Employment Leave Act – Ministry of Business, Innovation & Employment (MBIE), the official source for background, guidance and the transition timeline.
- Payroll for New Zealand organisations – how Affinity supports NZ payroll compliance today.
- KiwiSaver contribution changes – another recent NZ payroll change, and how Affinity handled it.
Not ready to talk? Start here.
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