Major Changes to Annual and Sick Leave Are Coming

The changes are significant, but employers have a two-year transition period to prepare. This gives businesses and payroll providers time to update systems, review employment agreements, refresh policies, and make sure payroll data is accurate before the new rules apply.

What is changing?  

1. Leave will accrue in hours

Annual leave and sick leave will accrue from day one in hours, based on an employee’s standard hours of work.

For many employees, this should make leave balances easier to understand because one hour of leave taken will use one hour of accrued leave.

‍2. Leave starts building from day one

Currently, employees generally need to complete qualifying periods before accessing certain leave entitlements.

Under the new rules:

• Annual leave will begin accruing from the first day of employment.
• Sick leave will begin accruing from the first day of employment.
• Bereavement leave will be available from the first day.
• Family violence leave will also be available from the first day.

This means employees will no longer need to wait six months for sick leave or 12 months for annual leave entitlements to start building up.

3. New Rules for Casual and Additional Hours

For casual hours and qualifying additional hours, employers will instead pay a 12.5% leave compensation payment on those hours worked.

This is intended to simplify leave treatment where work patterns are variable or where hours sit outside the employee’s standard hours.

Important:

The current Holidays Act rules continue to apply until 6^th August 2028. Employers cannot start applying the new rules early.  

4. Employees Can Cash Up More Annual Leave

Employees will be able to request payment for up to 25% of their annual leave balance each year, while still retaining the majority of their leave entitlement.

For example, if an employee has 20 days of annual leave available, they may request to cash out up to 5 days.

5. Changes for Employees Returning from Parental Leave

The new law removes the widely criticised rule that could reduce annual leave payments for employees returning to work after parental leave.

This is intended to provide a fairer outcome for parents returning to the workforce.

6. More Transparency Around Leave Balances

The legislation also introduces clearer payroll reporting requirements, making it easier for employees to understand their leave entitlements and balances.

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What this means for employers  

While the changes are not expected to take effect until 2028, businesses should be aware that:

• Payroll systems are likely to require updates.
• Employment agreements may need reviewing.
• Leave policies and procedures may need updating.
• Payroll and HR staff may require training on the new rules.

 Most employers won't need to take immediate action, but it is worthwhile becoming familiar with the changes now, so there are no surprises later.

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Employer preparation checklist  

• Check whether your payroll system can support hours-based leave accruals.
• Keep current payroll data accurate so leave balances can be converted correctly later.
• Review employment agreement templates and identify clauses that may need updating.
• Review workplace leave policies and internal payroll procedures.
• Plan training for payroll, HR, managers, and anyone approving leave.
• Watch for further Employment New Zealand guidance during the transition period.

Key takeaway  

The new Employment Leave Act is intended to simplify New Zealand's leave system by moving to an hours-based model and making leave entitlements easier to calculate and understand. While the changes are significant, businesses have a transition period to prepare before the new rules take effect.

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Need help preparing your business?

‍At TAEL, we’ll continue to monitor the Employment Leave Act changes and keep our clients updated as further guidance becomes available. If you have questions about how these changes may affect your business, please get in touch with our team.

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