Parliament has repealed the Holidays Act 2003, ending a law that cost New Zealand employers hundreds of millions of dollars in back pay and left payroll teams arguing for more than two decades over what counts as a working day.
The Employment Leave Bill passed its third and final reading on Wednesday evening. It replaces the Holidays Act in full with the Employment Leave Act 2026, and it starts a two year clock for every employer in the country to rebuild the way leave is counted and paid.
Workplace Relations and Safety Minister Brooke van Velden told the House the bill delivered long overdue reform to “one of the most complex and problematic areas of our employment law”, RNZ reported from the debate.
In a statement released after the vote, van Velden said the change had been asked for repeatedly and never delivered. “Kiwis have been asking Governments to do something about this legislation for years, and in particular they have been asking for an hours-based accrual system. Successive governments have put it on the to-do list, but nothing came to fruition,” she said.
The mechanics are a clean break from the old model. Annual leave and sick leave will accrue in hours rather than in weeks and days, in direct proportion to an employee’s standard hours of work. Annual, sick, bereavement and family violence leave will be available from the first day of employment for everyone, including casuals. Leave will be paid using a single hourly rate across every leave type, which strips out the conversions between hours, days and weeks that produced most of the old law’s errors.
Additional hours and casual hours will no longer accrue leave at all. Employers will instead pay a 12.5 percent leave compensation payment on those hours. Employees will be able to cash up a quarter of their annual leave balance each year, itemised pay statements showing pay and leave become mandatory, and a new otherwise working day test will apply to people who work additional days or have no set pattern of work. The penalty that reduced annual leave payments for people returning from parental leave has been removed.
For business the number that matters is the lead in. Section 2 of the new Act brings it into force on the second anniversary of Royal assent, and employers then get a further year to bring employment agreements into line. Staff of state school boards paid through the centralised schools payroll sit outside that timetable and can be phased in by Order in Council at any point up to the tenth anniversary of Royal assent.
The cost of getting the current law wrong explains why employer groups have pushed so hard for the change. Labour Inspectorate breach cases rose from 1,055 in the 2021/22 year to 2,013 in 2023/24, and between November 2015 and June 2020 some $237 million was paid to 227,300 employees in private sector remediation alone, according to ministry figures compiled in a B2B News analysis of the bill. Health New Zealand’s estimated remediation liability sits at $2.2 billion and the education sector’s at about $503 million. Accommodation, food services and retail together account for more than half of all recorded breaches, with construction and the primary industries making up most of the rest.
Repealing the law does not erase those liabilities. Schedule 3 of the new Act sets up a remediation process for working through what is still owed under the old regime, and employers who have been underpaying holiday pay will still have to fix it.
The transition is where employers see the most risk. Retail NZ, which speaks for around 30,000 businesses employing 222,000 people, warned in its submission that the bill “contemplates multiple transition triggers with different operative dates”, which “could require employers to operate two or even three parallel payroll and compliance configurations, significantly increasing costs, administrative workload and non-compliance risk”. It asked for one definitive transition deadline and did not get one.
KPMG’s analysis of the bill noted that the mandatory pay statement rules arrive alongside new infringement offences carrying penalties of up to $20,000, and warned that as systems move across it may become harder in practice to keep legacy contract terms written for the old framework. In other words, the act of transitioning can create exposure of its own.
All three opposition parties voted against the bill. Labour MP Phil Twyford told the House the government had “chosen to prioritise administrative efficiency for employers at the expense of part-time and casual workers, who lose money and lose time off as a result of this law”.
The Public Service Association campaigned against the bill for months and says more than 200,000 workers will end up out of pocket because overtime, penal rates and regular allowances will no longer be reflected in leave payments. “Supporting this law in the middle of a cost-of-living crisis is irresponsible,” national secretary Fleur Fitzsimons said in a statement issued last week. The union’s worked example is an airport firefighter on 50 hours a week including 10 hours of overtime. Their weekly pay rises slightly under the new loading, but their pay for a week of leave drops from $2,145 to $1,560, which the PSA calculates as a loss of about $1,267 a year. The union has said it will campaign on the issue through to the election.
That distributional fight will run for the next two years. The practical question for employers is narrower. Payroll providers now have a fixed specification to build against for the first time since 2003, and most businesses will be waiting on their software vendor rather than doing the work themselves. The Ministry of Business, Innovation and Employment has said initial guidance and a timeline for further material will go up on its Employment New Zealand site once the bill receives Royal assent.
The parts of the workforce that will feel the change most are the ones the old law handled worst. Roughly 93 percent of employees work standard hours and will simply see their leave counted in hours against their contracted week. It is the casual, variable and commission-paid end of the labour market where the new arithmetic produces different answers, and where employers will need to look closely at how their agreements are written well before the two years are up.
We covered the bill’s passage through select committee earlier this month.
What does the end of the Holidays Act mean for your workplace or your business? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
Leave a Reply