Farewell Holidays Act... Your Retirement Has Been Well Earned
If you've ever found yourself wondering why calculating annual leave could be so complicated, you're certainly not alone.
For more than 20 years, the Holidays Act 2003 has challenged employers, payroll providers, accountants and employment lawyers alike. In fact, many businesses have spent years correcting payroll errors—not because they weren't trying to do the right thing, but because the legislation itself was incredibly difficult to apply.
Thankfully, help is on the way.
Today, the Employment Leave Act 2026 officially became law, replacing the Holidays Act with a new framework that is designed to be simpler, fairer and better suited to today's workplaces.
Before you panic and ring your payroll provider, there's one important thing to know...
Nothing changes tomorrow.
The Government has allowed a 24-month transition period, giving employers, payroll providers and software developers plenty of time to prepare before the new system comes into effect.
Why change something that has been around for over 20 years?
The simple answer is that the Holidays Act no longer reflected the way many New Zealanders work.
When the Act was introduced in 2003, the traditional Monday-to-Friday work week was still the norm. Today, many employees work:
- flexible hours;
- rotating rosters;
- part-time schedules;
- longer shifts; or
- compressed working weeks.
Trying to fit these modern working arrangements into legislation written more than two decades ago has created endless complexity.
Questions such as "What is an otherwise working day?" and "Do I use Ordinary Weekly Pay or Average Weekly Earnings?" have become all too familiar for payroll administrators.
The result? Thousands of businesses have had to undertake expensive payroll reviews and remediation projects.
So, what's changing?
The biggest change is that employee leave will generally be measured in hours rather than weeks or days.
This makes much more sense for modern workplaces and should significantly simplify leave calculations for employees with varying work patterns.
Another welcome change is that annual leave will begin accruing from an employee's first day of employment, rather than becoming an entitlement only after completing 12 months of service.
Sick leave is also being modernised by linking entitlements more closely to an employee's agreed working hours, creating a fairer outcome for employees working different shift lengths.
Better news for employers
Perhaps the biggest win is that payroll calculations should become considerably simpler.
The new legislation removes many of the complicated formulas that have frustrated employers for years, reducing the risk of payroll errors and making compliance easier.
No legislation is ever completely simple, but this is certainly a step in the right direction.
Do I need to do anything now?
Not immediately.
Although the legislation has now passed, the current Holidays Act continues to apply while the transition takes place.
Over the next two years:
- payroll software providers will update their systems;
- MBIE will release further guidance;
- employers can review employment agreements where required; and
- businesses will have plenty of time to prepare before the new rules become mandatory.
Our advice
For now, the best approach is to stay informed rather than rush into making changes.
We recommend that employers:
- continue maintaining accurate payroll records;
- keep an eye on communications from their payroll software provider;
- follow updates from MBIE; and
- seek advice before making changes to payroll or employment agreements.
GCOL's view
At GCOL, we think this reform has been a long time coming.
The Holidays Act has caused confusion for even the most diligent employers, and we've worked with many clients over the years to navigate its complexities. A simpler, more practical leave system is good news for employers, employees and payroll professionals alike.
We'll continue to monitor the rollout of the Employment Leave Act and keep our clients updated as further guidance becomes available.
If you'd like to understand what these changes could mean for your business, or simply want to make sure your payroll processes are ready when the time comes, we're here to help.
After all, we'd much rather spend our time helping your business grow than explaining Average Weekly Earnings for the hundredth time!
