On 23 September 2025, Minister Brooke van Velden, on behalf of the New Zealand Government, announced a complete overhaul of the Holidays Act 2003. After years of dealing with the hideously complex and uncertain holiday rules, employers have been eagerly awaiting change. The new regime proposed under the ‘Employment Leave Act’ appears to be driven by a genuine focus on simplicity and certainty. We consider the key changes and how this will impact employers and employees across Aotearoa New Zealand. 

Key changes 

Hours based accrual for sick and annual leave

Addressing a longstanding area of confusion, the proposed changes look to amend how employees earn annual and sick leave. There will no longer be a year-long wait to become entitled to four weeks’ holiday, or a six month wait to get paid sick leave. Both annual and sick leave will now accrue in direct proportion to the hours worked from day one of employment, and will remain as fixed entitlements whether or not hours of work change in the future. While there may be arguments about fairness for part time employees who no longer receive the same sick pay entitlement, this system is manifestly much simpler and administratively workable.  

Bereavement and family violence leave

All employees will now be entitled to bereavement leave and family violence leave from their first day of employment. This change avoids the complexity of working out who is entitled, and is a win for common sense, recognising that employees may be affected by family violence or bereavement at any stage of their employment. 

A new 12.5% pay-as-you-go rate

Under the Employment Leave Act, casual employees will be entitled to 12.5% on top of their wage to recognise that they are missing out on accruing both holiday and sick leave. Waged employees will also get 12.5% on top of any hours worked outside their normal contracted hours. However, waged employees who complete additional hours will no longer be entitled to an increase in holiday pay entitlements. This is a much simpler and arguably fairer approach.  But it will also impose an immediate cash cost on employers needing additional hours to be worked. 

Calculation of holiday pay 

Holiday pay will be determined using an employee’s basic pay rate or salary. Commission and bonus payments are no longer to be taken into account. While this will greatly simplify the calculation, those whose income is largely made-up of commission or bonuses will see a significant decrease in their holiday pay. 

Annual holidays after parental leave

Parents returning from parental leave will no longer be penalised by the rule which requires holiday pay to be calculated on their average earnings including the parental leave period. They will receive a full entitlement to normal leave accrual and holiday pay.

New requirement for payslips 

Employers will be required to provide clear and detailed payslips which set out an explanation of leave entitlements and pay. Although this may increase administrative efforts at the beginning of Employment Leave Act’s implementation, this change should promote increased transparency, and once set up, should not be a significant cost.  

Cashing in annual leave

There will be greater flexibility for employees with substantial annual leave balances to cash up a portion of their entitlement. Employees will be able to request to cash in up to 25% of their total annual leave balance, rather than being restricted to only one week.

Dealing with existing non-compliance

Interestingly, the Minister also proposes to devise a new statutory estimation tool to calculate remediation payments for non-compliance with the existing Holidays Act.  Buried in the recommendations is a suggestion that employees would then be prevented from challenging the statutory estimate.  In other words, there may be limits on future employee claims – a controversial proposal given the Government’s recent approach to pay equity claims, and as it is in the public sector that many such remediation processes are expected to be required.

Moving forward

While the prospect of a Holidays Act overhaul might be welcome and even exciting news, there is still a significant waiting period. Further consultation will be undertaken, and even when the law is passed, there will be a two year implementation period. That such a long period is needed demonstrates the fundamental nature of these reforms and the extent of their impact. It also highlights the extent of the problems with the existing law. There will undoubtedly be a range of views on the merits of the reforms, and there may be a need for some adjustments. However, we can only hope that politics and administrative delay do not get in the way of a long-overdue remedy for our present unsatisfactory system.