Employment Leave Act 2026: SME employer guide

Employment Leave Act 2026: The SME employer cheat sheet

Article

Published: September 30, 2026 |

The Employment Leave Act 2026 will replace New Zealand’s Holidays Act from 6 August 2028, introducing the most significant changes to leave entitlements and payroll calculations in more than 20 years, with the new rules applying from the beginning of an employee’s first pay period starting on or after that date. That creates a two-year implementation period, but the work involved should not be underestimated.

While the new legislation aims to simplify leave management, employers will still need to review payroll systems, employment agreements, workplace policies, leave processes and employee communications.

“For many business owners, this is not simply a payroll change. It is an opportunity to strengthen employment practices, improve payroll accuracy and reduce compliance risk. Businesses that prepare early will be best placed to avoid disruption, maintain employee trust and manage the transition smoothly.” – Alex Cochrane, Director and People Advisory Specialist, BDO Gisborne

In this article, Alex Cochrane outlines what SME employers need to know about the Employment Leave Act, including the key changes, the practical impacts for your people, payroll and systems, the risks to plan for, and the steps you can take now to prepare with confidence.

Why the Holidays Act is being replaced

The Holidays Act 2003 has been difficult to apply in practice, particularly for businesses with variable hours, rosters, allowances, overtime, casual employees or employees who work across different patterns. What looks straightforward on paper can become highly complex once payroll teams need to calculate entitlements across real-world working arrangements.

That complexity has contributed to widespread errors and remediation costs, creating risk for employers and uncertainty for employees. The Employment Leave Act is intended to provide a simpler, clearer framework by aligning leave more closely with hours worked and creating greater consistency in how entitlements are calculated and paid.

What’s changing?

The biggest change is the move from a weeks-and-days framework to an hours-based model for most leave types. In practice, for most employees:

Annual leave and sick leave will accrue from day one in hours.
Employees will use one hour of leave for each hour they take off work, making part-day leave easier to manage.
Sick leave will accrue progressively rather than being provided as a standard 10-day annual entitlement, which may produce different outcomes for some part-time employees.
Casual hours and additional hours worked above standard hours will attract a 12.5 percent leave compensation payment.
Leave payments will use a single hourly leave pay rate, based on the employee’s lowest hourly rate for the day leave is taken, while fixed allowances will continue to be paid during leave.
Public holiday and alternative holiday entitlements will use clearer, hours-based rules.
Bereavement leave and family violence leave will remain days-based and will be available from day one.
New payslip information requirements will apply.

“The shift to hours sounds simple, but accurate time records and clearly documented working arrangements will become even more important.”

What employers should focus on now

Although the new Act does not take effect until August 2028, the implementation period gives employers time to assess readiness and address gaps without last-minute pressure.

The changes will impact various aspects of your business, so Alex recommends asking the following questions as a starting point to help guide your planning.

What are the potential impacts on our people?

Do our employment agreements accurately reflect how employees actually work?
Are standard hours clearly documented?
How do we manage overtime, additional hours and flexible work arrangements?
Do our workplace policies align with current practice?
Are there collective agreements that require advance planning or renegotiation?

“The clearer your documentation and work arrangements are, the easier the transition will be.”

How will this affect Payroll?

Can our payroll provider support the new requirements?
Are hours worked recorded consistently and accurately?
Can we distinguish between standard, additional and casual hours?
Have we assessed or completed any Holidays Act remediation work still required?
Do we understand how the changes may affect payroll costs and leave liabilities?

“For many employers, transition success will depend on the quality of their payroll and time-recording data.”

Are our digital systems up to the job?

Can our payroll and workforce systems capture the information required under the new Act?
Do payroll, rostering and timekeeping systems integrate effectively?
Are we relying on manual spreadsheets or workarounds?
Can we produce reliable reports and audit trails?

“Employers should begin conversations with software providers early to understand their roadmap for supporting the Employment Leave Act.”

What are the biggest risks for SMEs?

Alex explains that her clients who are best placed to take advantage of the new Act, as well as effectively manage the risks associated with the changes, are those who have been considering the above questions for some time. Ultimately, the biggest risk for employers is leaving the implementation plan until the last minute. Employers who act now will be better placed to manage compliance, maintain employee trust and avoid last-minute pressure when the new rules take effect.

Without careful planning, you could put your business at risk through:

Employment agreements that do not reflect actual working arrangements.
Poor or inconsistent time and attendance records.
Manual payroll processes that rely on individual knowledge.
Unresolved Holidays Act remediation obligations.
Payroll systems or providers that are not ready for the new requirements.

“Another consideration is that with casual employees losing their sick leave balances, and leave reducing in value for many others, organisations may face a surge in leave requests. Employers should plan early to manage workforce availability and business continuity risks ahead of the changes coming into effect.” – Sam Ratten, Risk Advisory, BDO Wellington

Remember: The Holidays Act still applies

Nothing changes immediately. Employers must continue complying with the Holidays Act until the Employment Leave Act applies from the beginning of each employee’s first pay period starting on or after 6 August 2028. Employers cannot apply the new rules early, even if their systems are ready.

The new legislation also does not remove obligations relating to historic Holidays Act underpayments. A new reasonable compensation option is expected to be available for some historic non-compliance, but employers should still understand their current exposure and take appropriate steps while further detail is confirmed.

“The new Act does not wipe the slate clean. Historic Holidays Act risk still needs to be understood and managed.”

The opportunity behind the change

The transition is not only about compliance. It also gives SMEs an opportunity to improve the way they manage people, payroll and workforce information. Businesses can use the implementation period to:

simplify leave administration,
improve payroll accuracy,
modernise payroll and workforce systems,
update outdated employment documentation,
improve workforce data quality,
reduce reliance on spreadsheets and manual processes, and
strengthen employee confidence in leave and pay calculations.

A proactive approach can leave the business with more efficient, reliable and resilient processes after the legislative change.

Three things every SME should remember

1) Nothing changes until August 2028, but preparation should start now.

Early planning gives employers more time to understand the impact, address gaps and avoid rushed decisions.

2) Good data and clear documentation will be critical.

Employment agreements, payroll records and workforce data will form the foundation of compliance under the new framework.

3) This is more than a payroll issue.

The change affects people practices, payroll processes, technology, governance and employee trust. A coordinated approach will deliver the best outcome.

The next two years provide an opportunity to get clear on your current position, identify risk areas and build the systems, processes and documentation needed for a successful transition.

How BDO can help

The Employment Leave Act affects more than payroll. BDO’s specialists can work together across people, payroll, digital systems and assurance to help employers understand their current position and build a practical transition plan.