Employment Law Update: Employment Leave Bill Introduced

In September 2025, the Government announced plans to reform the Holidays Act 2003 and introduce a new framework for calculating employee leave entitlements. Those proposals have now taken a further step, with the Employment Leave Bill introduced to Parliament on 9 March 2026.

The Bill passed its first reading on 12 March 2026 and will now likely move to a select committee for further consideration and submissions.

If enacted, the Bill would repeal the Holidays Act 2003 and replace it with new legislation known as the Employment Leave Act 2026, introducing a revised framework for how leave entitlements are accrued, calculated and paid.

Key Proposed Changes

1.   Types of Working Hours

The Bill introduces three categories of hours which will determine how leave accrues and is paid:

• Standard hours – the minimum contracted hours an employee is required to work under their employment agreement and for which they must be paid. These hours form the basis for calculating leave entitlements.

• Additional hours – hours worked in addition to an employee’s standard hours where the employee receives an additional payment for those hours (i.e. paid overtime).

• Casual hours – hours worked where the employer is not required to offer work and the employee is not required to accept work offered to them.

2.   Shift to an hours-based system

Annual leave and sick leave would accrue in hours from the first day of employment, rather than being provided in weeks or days after a qualifying period.  

3.   Annual Leave:

• Annual leave would accrue at a minimum rate of 0.0769 hours per standard hour worked and would generally be taken in hours rather than days. Leave would not accrue during periods of unpaid leave or when an employee is being paid by ACC.

• Employees returning from parental leave would receive full pay for annual leave taken after their return, rather than the reduced calculation that applies under the current Holidays Act.

4.   Sick Leave

Sick leave would accrue at 0.0385 hours per standard hour worked, up to a maximum balance of 160 hours, with entitlements for part time employees calculated on a pro-rated basis.

5.   Bereavement Leave and Family Violence Leave

These entitlements would remain day based, but employees would become eligible from the start of employment rather than after 6 months. The Bill also proposes that bereavement leave and family violence leave could be taken in part days.

6.    Public holidays and the “otherwise working day” test:

A new test is proposed for determining whether a public holiday falls on an employee’s otherwise working day where their work pattern is not clearly defined. This would be assessed by looking at the employees work pattern over the preceding 13 weeks.

7.   Leave Compensation Payment

Casual Employees

• The Bill proposes that casual employees would receive a leave compensation payment (LCP) of 12.5% of their ordinary hourly rate on all hours worked.

• This payment would replace the current 8% “pay-as-you-go” holiday pay and reflects the value of both annual leave and sick leave entitlements upfront.

• To remain compliant, the LCP must be recorded as a distinct component of pay and shown separately on the employee’s pay records and pay statements.

Permanent Employees

• Permanent employees (both waged and salaried) would only receive a 12.5% LCP where their employment agreement provides for separate payment for additional hours worked. This payment is reflected as a distinct component of pay that is shown separately on the employees pay statement.

• For employees who work standard hours, the Bill proposes that the 12.5% LCP would apply to additional hours worked beyond their standard hours.

• Where no provision for additional hours is explicitly stated in the employment agreement, e.g. “remuneration is for all hours worked”, the 12.5% LCP would not apply.

8.     Cashing up annual leave

• Employees would be allowed to cash up to 25% of their total annual leave balance in a 12-month period. Currently employees are limited to cashing up one week of the annual leave they become entitled to in that year.

• An employer may decline an employees request to cash up annual leave and is not required to provide a reason for the refusal.

What’s Next?

As the Bill goes through the Select Committee process, the proposed changes set out in the Bill are subject to change.

The Bill passed its first reading on 12 March 2026, and submissions are expected to open shortly.

Employers have the opportunity to provide submissions regarding the proposed changes during the Select Committee stage and Knowhow would be happy to discuss this with you further if you would be interested in providing any submissions/feedback.

After the Select Committee reports back, the Bill will return to Parliament for its second reading, followed by consideration by the Committee of the Whole House and a third reading. If passed, it will then receive Royal Assent and become law.

If the Bill reaches Royal Assent, the Government has indicated there would be a transition period of around two years (up to 10 years for the education sector) before the new framework takes effect.

For now, the Holidays Act 2003 remains in force and will continue to apply.

We will keep you updated as the Bill progresses and further details become available.

Sylvia Wood

Director