Is your business ready for leave to be calculated in hours?

New Zealand’s proposed leave reset: what employers need to prepare for now

New Zealand’s leave system has long been a source of confusion for employers, payroll teams, HR leaders and employees alike. The current Holidays Act 2003 has created challenges not because organisations are unwilling to comply, but because the framework is difficult to apply in modern workplaces where working patterns can vary from week to week.

With the Employment Leave Bill now introduced to Parliament, New Zealand is preparing for a significant shift in how leave is accrued, recorded and paid. The proposed Bill would repeal and replace the Holidays Act 2003, moving much of the system from weeks and days to hours, with the goal of creating a clearer and more predictable framework for both employers and employees.



For businesses, this is not simply a legal update. It is a payroll, workforce planning, communication and change management issue. The proposed regime includes new categories of working time, leave accruing from day one, hourly leave balances, updated public holiday tests and a 12.5% leave compensation payment for additional and casual hours.

“The current system is well known to be complex, too complex in fact, and it leads to widespread but inadvertent non-compliance.”

On a recent NZ Market Update, Host Shannon Barlow, NZ Managing Director, was joined by Guest Anamika Sharma, Employment Lawyer and Workplace Relations Specialist currently supporting the Woolworths Group, to unpack what the proposed move away from the Holidays Act could mean in practice.

The biggest shift is the proposed move from a weeks-and-days model to an hours-based framework. Under the current system, annual leave is held in weeks, which can create complications when an employee’s working pattern changes. If someone increases or reduces their hours, their leave balance can effectively shift in value. For employers managing large, varied or flexible workforces, this can become difficult to track, explain and apply consistently.

Anamika explained that this is one of the reasons the current system has created so many practical issues. Workplaces today often include full-time, part-time, casual, variable-hours and salaried employees, all working under different patterns. A framework built around standard weeks and days does not always fit neatly with that reality. When combined with different payment calculations for different leave types, overtime, allowances, bonuses and public holiday tests, errors can happen even when employers are acting in good faith.

One of the key goals of the proposed Bill is to make leave entitlements easier to understand. Annual leave would accrue in hours from the first day of employment, and sick leave would also accrue in hours. This could make balances clearer for employees and easier for employers to administer, particularly where workers have irregular or changing hours.

However, simplicity does not mean instant change. One of the biggest misunderstandings, according to Anamika, is the assumption that the current rules are already gone. They are not. Until the Holidays Act is formally repealed and the new legislation comes into force, employers must continue complying with the current framework. The Bill also proposes that most sectors would have a two-year implementation period after Royal assent, giving employers and payroll providers time to prepare.

This transition period will be important because the practical work required could be substantial. Employers may need to review employment agreements, payroll settings, leave policies, rostering processes and employee communications. Existing leave balances would also need to be converted into hours, which could be a major exercise for organisations with large or complex workforces.

The proposed changes also bring opportunities. A single hourly leave pay rate for many types of leave could reduce confusion and improve consistency. Sick leave taken in hours may give employees greater flexibility, such as taking part of a day off rather than a full day. For employers, cashing up annual leave would remain possible by agreement, up to a maximum of 25% in each 12-month period, which may help some organisations manage leave liability.

Another important proposed change relates to parents returning from parental leave. Under the new framework, parents returning from leave would receive their full holiday pay rate, rather than having holiday pay reduced through average earnings calculations. This could make the system fairer and easier to understand for returning parents.

There are also risks to manage. Annual leave payments under the proposed Bill would exclude allowances and productivity-based or incentive payments, including commissions, which may reduce leave pay for some employees. The proposed 12.5% leave compensation payment for additional and casual hours could also create upfront cost implications for employers.

Historical Holidays Act issues will not disappear either. Anamika highlighted that the new legislation would not wipe the slate clean on past underpayments. Employers may still need to address historical remediation, although the Bill includes a proposed statutory remediation process intended to support employers in resolving outstanding Holidays Act liabilities.

For HR and payroll teams, the message is clear: this is not a change to leave to review at the last minute. Even if the final legislation changes as it progresses through Parliament, employers should begin identifying where their current processes may be exposed. The organisations that prepare early will be better placed to manage the transition, communicate clearly with employees and avoid repeating the same compliance challenges under a new system.

What should employers do now to prepare for New Zealand’s leave law changes?

• Review current payroll and leave systems to understand how easily they can track, accrue and pay leave in hours.
• Audit employment agreements and policies to identify wording that may need to change under a new leave framework.
• Map the different worker types in the business, including full-time, part-time, casual, salaried, variable-hours and shift-based employees.
• Start planning how existing leave balances could be converted from weeks or days into hours.
• Keep communication clear with employees, especially around the fact that the current Holidays Act still applies until the new law comes into force.
• Support HR and payroll teams early, as they will carry much of the practical workload during the transition.