New Employment Leave Act

New Employment Leave Act

The new Employment Leave Act 2026 received Royal Assent on 5 August 2026. Although enacted, most provisions will not commence immediately, with the Act coming into force on the second anniversary of Royal Asset, though some parental leave provisions commence earlier (1 July 2027).

The new Act replaces the Holidays Act 2003 and introduces significant changes to how leave is accrued, taken, and paid. Key changes include:

 

How leave is earned

Accrued leave in hours: Annual and sick leave will now accrue from the first day of employment, measured in hours against standard hours, rather than as annual entitlements. Previously under the Holidays Act, annual leave was granted after 12 months, and sick leave after sick months, in days.

Upfront compensation: A 12.5% payment will be made upfront for all additional and casual hours, in lieu of annual and sick leave accrual on those hours. It replaces the need to accrue annual or sick leave on those hours. The percentage is designed to approximate the value of annual leave when converted into an hourly rates for workers who do not accrue leave on those hours.

Public holidays test: Public holiday entitlements will be determined using a revised “Otherwise Working Day” test. Where an employee’s working days are not fully defined in their employment agreement, a day will be treated as an OWD if, over the previous 13 weeks, the employee worked (or was on paid or unpaid leave) on at least 50% of the corresponding weekdays.

Alternative holidays will also move to an hours based accrual model.

 

How leave is taken

Hourly deduction: Employees will use one hour of accrued leave for each hour taken off work, enabling part day leave.

 

How leave is paid

Single hourly rate: All leave types will be paid at the same hourly rate, based on the employee’s lowest hourly rate for the day the leave is taken.

Fixed allowances: Fixed allowances will continue to be paid in full during leave.

Parental leave interaction: Annual leave taken after parental leave will be paid in the same way as any other annual leave.

 

New hour based framework

The new framework for accruing and paying leave distinguishes between different types of working hours. This is the backbone of the new framework. It removes the Holiday Act’s reliance on “gross earnings” and eliminates the need to recalculate leave pay based on fluctuating hours.

Standard hours: Hours an employee is required to work under their employment agreement (excluding hours under any availability provisions) and for which the employer must pay them.

Additional hours: Hours worked beyond standard hours where an additional payment is required.

Casual hours: Hours worked under an arrangement where neither party is obliged to offer or accept work.

Employers should review all employment agreements. Key actions include confirming that standard hours are described with sufficient clarity, checking that working arrangements are correctly classified across the three new hour types, and ensuring payroll systems can support hours‑based accrual and the leave‑compensation payment as separate payable components.

If you have any questions regarding the Act and how this may impact your business, please get in touch with us.