The Holidays Act Overhaul – What Employers Need to Know

 

The Holidays Act Overhaul – What Employers Need to Know

Over the past few years, the Holidays Act has been under constant scrutiny for being complex and difficult to apply. Many New Zealand employers have struggled to stay compliant, often through no fault of their own—because the current calculations are confusing and inconsistent.

Now the Government has announced the biggest shake-up of the Holidays Act since 2003. While the reforms aren’t yet law, they signal major change for every employer once the new legislation is introduced.

Why the overhaul?

The current Act has long been criticised for inconsistency. Each type of leave—annual, sick, bereavement, and public holidays—is calculated in different ways, depending on employment type, hours worked, and pay structure.

The goal of the Holidays Act reform is to simplify this system so both employers and employees can understand and apply it correctly.

What’s proposed

According to the Ministry of Business, Innovation and Employment (MBIE), the new system would:

• Move to hour-based accruals for annual and sick leave rather than days or weeks.

• Allow leave to accrue from day one of employment.

• Let workers cash up to 25 percent of their annual-leave balance each year.

• Give bereavement and family-violence leave from day one, with the ability to take part-days.

• Introduce a new public-holiday test for employees with variable work patterns.

• Simplify alternative-holiday calculations, based on hours actually worked on the public holiday.

• Standardise leave-pay calculations using an hourly rate for greater payroll accuracy.

• Introduce a 12.5 percent leave-compensation payment for genuine casual employees and extra hours worked.

These changes are intended to make compliance easier—but they will also require significant payroll and policy adjustments.

Timing and implementation

The proposal is not yet before Parliament. Once a Holidays Act Amendment Bill is drafted and passed, there will be a two-year implementation period to give payroll providers and employers time to update systems and employment agreements.

That timeframe may sound generous, but with multiple payrolls, rosters, and employment types to review, two years will pass quickly.

What employers can do now

While no action is required immediately, employers should:

• Stay informed about the progress of the reform.

• Review how leave and pay are currently recorded.

• Plan for updates to employment agreements and payroll software once the Bill is passed.

• Seek early legal or HR advice when draft legislation becomes available.

Proactive planning now will make the transition far smoother later.

Final thoughts

This is set to be the most significant update to New Zealand employment law in more than two decades. It aims to simplify the system—but as with any major reform, the detail will matter.

For now, the key message is simple: change is coming, but you don’t have to be across every detail yet. Stay informed, and be ready to adapt when the new rules take effect.

 

Need advice?

If you’d like to understand how the proposed Holidays Act reforms could affect your organisation, or want help reviewing employment agreements and leave policies once the Bill progresses, I can help.

Get in touch early—let’s talk through your next best steps.