Employment Leave Act: A new era for workplace leave

At a glance

• The government recently announced the repeal of the Holidays Act, which is to be replaced with the Employment Leave Act.
• Leave entitlements largely unchanged for most employees.
• Hours-based accrual introduces flexibility for sick and annual leave.
• Leave compensation payments for casual hours and additional hours payable and worked on top of contracted hours will be compensated upfront at 12.5%.
• Bereavement and family violence leave will be available from day one.
• Clearer pay statements will be made available as well as a more flexible approach to cash up annual leave.

The government recently announced that Cabinet has agreed to repeal the Holidays Act 2003 and replace it with a new Employment Leave Act. The Act will provide a modernised framework designed to simplify and improve leave entitlements for both employers and employees.

The Employment Leave Bill has not been introduced, which is anticipated to occur in early 2026. A 24-month implementation period will follow the passing of the Employment Leave Bill, allowing employers and payroll providers time to transition smoothly.

According to the Minister, most employees will see no change to their overall leave entitlements, though the structure and delivery of leave will be more flexible. The changes are expected to be cost-neutral for employers, balancing benefits across both sides.

Key changes to be introduced:

• Hours-based accrual: Annual and sick leave will accrue in hours from day one of employment for each contracted hour of work and employees can now take leave in hourly increments, rather than full days, offering greater flexibility.
• Pro rata sick leave: Sick leave will be proportionate to hours worked, aligning entitlements more closely with actual work patterns.
• Upfront leave compensation: 
  
  • Casual employees will receive a 12.5% payment for each hour worked (instead of accruing annual and sick leave), replacing the current 8% Pay-As-You-Go model which compensates an employee for leave rather than providing leave entitlements per annum.
  • Additional payable hours worked beyond contracted hours will also attract a 12.5% upfront payment, rather than accruing sick and annual leave.
• Immediate access to bereavement and family violence leave: These leave types will be available from the first day of employment.
• Annual leave post-parental leave: Employees returning from parental leave will receive full pay for annual leave.
• Mandatory pay statements: Employers will be required to provide itemised pay statements each pay period.
• Public Holidays: Will introduce a defined 'Otherwise working day' test for workers without contracted days (or pattern of days) on whether they are entitled to paid days off work and alternative holidays.
• Annual leave cash-up: Employees will be able to cash up to 25% of their total annual leave annually, rather than a maximum of one week.
   

This proposed reform marks a significant shift towards greater transparency, flexibility, and fairness in how leave is managed across the workforce.

Learn more about the Holidays Act reform, here.