Holidays Act reform

Decisions for new employment leave legislation

The Government is aware of issues with the Holidays Act and that these have been a longstanding concern for workers, employers and payroll providers. Resolving these issues is a priority for the Government. Progressing reforms to the Holidays Act to simplify the law, give businesses certainty and reduce compliance costs is an action under the Government’s Going for Growth plan.

Competitive business settings

In August 2025, Cabinet made policy decisions for new employment leave legislation: a simpler and more workable replacement for the Holidays Act 2003.

The proposed new employment leave legislation will reform the annual leave and sick leave systems:

• Annual and sick leave will accrue continuously in hours from day one, rather than being provided as lump sum entitlements. Leave will also be taken in hours and employees will be able to use their leave hours to take any part of a day off work.
• Employees will earn sick leave in direct proportion to their contracted hours. They will no longer all receive the same amount of sick leave.
• For hours worked by casual employees and hours worked over and above contracted hours for other employees (except where those hours are compensated by salary), there will be a 12.5% upfront leave compensation payment in lieu of annual and sick leave accrual.

The way leave is paid will also change. The same hourly leave pay rate will be used for all types of leave. It will be based on a worker’s base wage for the day of leave. Fixed allowances will also continue to be paid in full during leave. When annual leave is taken after parental leave it will be paid like any other annual leave (not at a reduced rate as it can be currently).

Alternative holidays are also proposed to shift to hours-based accrual.

Public holiday entitlements will be based on a new clearer test for determining whether an employee would have otherwise worked on the day.

A full list of the key changes:

Read more detail about the changes:

Read the Minister’s announcement:

Overhaul of broken Holidays Act on the way(external link) — Beehive.govt.nz

Cabinet paper and minute setting out policy decisions:

Next steps

Once legislation has been drafted and introduced it will be considered by a Select Committee. The public and interested parties will have the opportunity to provide input at that stage.

Read more about when and how to make a submission to a select committee and what happens(external link) — New Zealand Parliament

Read more about the role of select committees(external link) — New Zealand Parliament

Once the Bill is open for submissions a link will be published on the New Zealand Parliament website.

Make a submission(external link) — New Zealand Parliament

Preparing for the changes

While employers may want to start thinking about what the changes will mean for them, it is important to note that none of the proposed changes are final until the Bill is passed. There will be a 24-month implementation period between when a Bill is passed and when it comes into force. This provides time for payroll providers and employers to make changes to business and payroll systems.

MBIE will ensure that information about any changes to the Holidays Act is available to employers, employees and payroll providers as soon as practical after the Bill is passed.

Until any changes to the Holidays Act go through the Parliamentary process and come into force, all of the existing rules still apply. This means that employers still need to comply with the current Holidays Act, and ensure they are providing the correct entitlements and payments to employees.

Additionally, employers still have an obligation to remediate employees for historical underpayments that have occurred due to non-compliance with the current Holidays Act.

Leave entitlements under the current Holidays Act(external link) — Employment New Zealand

Who you can contact

If you have a general question about rights and obligations related to leave and holiday entitlements you can find information for employers and employees on the Employment New Zealand website.

Employment New Zealand(external link)

If you cannot find the information you need, you can email your query to Employment New Zealand.

Email us a query(external link) — Employment New Zealand

If your questions are urgent, call 0800 20 90 20.

If you have questions about whether your current or former employer has calculated your leave payments correctly, or if you believe you may be eligible for a remediation payment, contact your employer in the first instance. Many employers have webpages about their Holidays Act remediation programmes which include contact details for employees.

If you have seen or suspect a breach of employment standards you can report it to the Labour Inspectorate.

Labour Inspectorate complaints(external link) — Employment New Zealand

If you have specific questions about the Holidays Act Review, email Holidays Act Review.

Work completed since 2023

Record of work completed since the 2023 General Election.

Targeted consultation on a draft Bill

The Government undertook targeted consultation in September 2024 on a draft Bill with proposed reforms to the Holidays Act. The draft Bill included some changes and additions to the previous Government’s decisions. The main focus of these was to simplify the calculations and reduce the cost of implementing them for employers. It also reflected the Government’s decision to take a pro-rata approach to sick leave entitlements.

The exposure draft Bill included:

• a proposed approach to pro-rating sick leave so that there is some proportionality to how much an employee works
• moving from a weeks-based entitlement system to a weeks-based accrual system for providing annual leave entitlement
• simpler methodologies for calculating use of leave that do not require pay systems to access data about daily hours of work
• objective criteria for using pay-as-you-go for annual leave and a less burdensome review process, and
• simplifying the payment method for other types of leave so that only one calculation is required.

The targeted consultation sought feedback on the technical and policy details of the draft Bill, and on alternative options to improve its simplicity and workability.

Participants in the targeted consultation included stakeholders comprising employers, employees, and technical experts, across various industries, sectors, and population groups. MBIE selected the participants from those who registered interest in participating in June 2024.

Cabinet documents

Cabinet documents that set out policy decisions in relation to the draft Bill.

Key briefings

Key briefings provided by MBIE to the Minister for Workplace Relations and Safety.

Change in the direction of the reform

In December 2024, officials were directed by the Minister for Workplace Relations and Safety to take a new approach to reforming the Holidays Act, with a focus on simplicity, improving workability and reducing compliance costs. The approach involves designing an hours-based accrual model for annual leave and considering whether other models may be best-suited for more complex work arrangements.

The Minister’s direction followed the completion of targeted consultation on a draft Bill with proposed reforms to the Holidays Act. The targeted consultation sought feedback on the technical and policy details of the draft Bill, and on alternative options to improve its simplicity and workability.

Many participants indicated that the general framework of the draft Bill is not a significant improvement on the current Holidays Act and that more fundamental changes to the leave system would better address the longstanding issues with the Holidays Act. Key reasons given included complexity, compliance costs and workability for those with variable work arrangements.

Read the Minister’s December 2024 announcement:

Minister response to consultation on Holidays Act replacement(external link) — Beehive.govt.nz

Read the Minister’s announcements leading to the targeted consultation:

• June 2024:
  Progress for fixing the Holidays Act 2003(external link) — Beehive.govt.nz
• September 2024:
  Milestone reached for fixing the Holidays Act 2003(external link) — Beehive.govt.nz

Previous work

Record of the work completed by the previous Government before the 2023 General Election.

The purpose of the Holidays Act Review

The Government established the Holidays Act Taskforce to suggest improvements to the Holidays Act, following a joint request from unions and employers.

The Taskforce was asked to make recommendations on options for a clear and transparent set of rules for providing entitlements to, and payment for, holidays and leave.

The Taskforce’s objectives were to:

• recommend changes that address the high degree of ambiguity that has made the Holidays Act difficult to understand and implement for employers
• make it easier for employees to understand their entitlements.

The Taskforce’s recommendations

The Holidays Act Taskforce made 22 recommendations which were jointly agreed to by union and business representatives. The Government accepted the Taskforce’s recommendations.

The recommendations were intended to provide prescriptive methods that employers could use to accurately calculate and pay leave entitlements. They also included some changes to employees’ leave entitlements and some proposals to provide  greater transparency and ensure employees are fully informed about their leave entitlements.

The recommendations included:

Clear methods, formulas and tests

• New methods for calculating the amount of leave entitlement an employee uses when they take leave.
• New leave payment formulas and definitions to provide greater clarity about what payments must be included in the calculations.
• New eligibility tests for Family Violence, Bereavement and Sick leave.
• A new ‘Otherwise Working Day’ test for determining days on which these entitlements apply. 
• A new test for when an employee may receive their annual holiday entitlement on a ‘pay-as-you-go’ basis and clear rules for reviewing its use.

Increased access to some leave entitlements

• Access to bereavement leave, family violence leave and some sick leave from the first day of employment for eligible employees and after 3 months for others who meet an eligibility test.
• Ability for employees to take annual holidays in advance on a pro-rata basis.
• Entitlement to 3 days bereavement leave for more types of family members.
• For employees returning from parental leave, payment for annual holidays according to the normal rules, rather than holiday pay only being based on average weekly earnings over the last 52 weeks.

Greater transparency for employees

• New, clearer requirements related to the process for having a closedown period. 
• Additional record-keeping requirements to ensure employers have the data required to accurately complete the calculations and tests. 
• A requirement to provide a pay statement in each pay period to provide greater transparency about leave and pay for employees.

Work progressed to implement the Taskforce’s recommendations

Detailed policy design work was completed

MBIE completed a policy design process to develop the details required to implement the Holidays Act Taskforce’s recommendations in legislation.

To support this process, MBIE brought together a working group of stakeholders including payroll system providers, payroll practitioners working in employer organisations, business, and unions.

The group contributed their insights into the practicalities of implementing the recommendations in payroll systems, and across a variety of complex employment environments.

Those insights informed some refinements to the Taskforce’s recommendations to address areas where the group identified gaps and opportunities for simplification.

The objectives of the refinements were to help ensure the new rules and processes for calculating leave entitlements and payments are definitive, clear, and logical, can be systematised, and are workable in all employment situations.

All of those refinements were consistent with the intent of the Taskforce’s recommendations.

Drafting of a Bill began

Drafting of legislation to implement the Taskforce recommendations and refinements began before the 2023 General Election but a Bill was not introduced.

The Government considered it was important that time was taken to get it right first time in order to minimise the risk of implementation challenges and future compliance issues.

Background documents

Establishing the Taskforce

(The Minister for Workplace Relations and Safety made a minor amendment to paragraph 9 of the terms of reference.)

Holidays Act: Issues paper

In August 2018, the Taskforce published an issues paper that set out its understanding of the key issues that employers, employees, and payroll providers face in trying to implement the Holidays Act 2003. The Taskforce considered feedback from stakeholders on the issues paper as it developed its final recommendations.

Interim report from Holidays Act Taskforce

In December 2018 the Taskforce provided an interim report to the Minister for Workplace Relations and Safety on progress with the review of the Holidays Act.

Accepting the Taskforce’s recommendations