What Central Otago Employers Need to Know
For years, the Holidays Act 2003 has frustrated employers with complex leave calculations, particularly for employees working variable hours. Even large organisations and government agencies have had to repay millions after discovering payroll errors caused by the Act's complexity.
Parliament has now passed the Employment Leave Bill through its third and final reading. Once it receives Royal Assent, it will become the Employment Leave Act 2026, replacing the Holidays Act 2003. The new legislation introduces a simpler, hours-based leave framework designed to better reflect modern working arrangements.
There is no need for employers to panic. Although the Bill has passed its third reading, it is not yet in force. Once it receives Royal Assent, a 24-month implementation period will begin before the new leave regime takes effect. Until then, employers must continue complying with the Holidays Act 2003. The transition period is intended to give businesses time to prepare, not to make immediate changes.
Annual leave will accrue from day one
One of the biggest changes is how annual leave is earned.
Instead of waiting 12 months before becoming entitled to annual leave, employees will begin accruing leave from their first day of work at a rate of 0.0769 hours for every standard hour worked.
Employees are not receiving more annual leave. Full-time employees will still receive the equivalent of four weeks' paid leave each year. The difference is that leave will build up progressively rather than becoming available all at once after 12 months.
Holiday pay should become simpler over time
The Employment Leave Act 2026 replaces the complex holiday pay calculations under the current legislation with a simpler hours-based model.
While the long-term system should be easier to administer, employers should expect upfront implementation work. Existing leave balances will need to be converted into hours, payroll systems updated, and employment agreements and payroll processes reviewed to accommodate the new framework.
For businesses with employees working variable hours, the end result should be simpler. Getting there will require planning and investment.
It's not just annual leave
The reforms also change how other statutory leave is earned and used, including sick leave, bereavement leave, family violence leave, public holidays and alternative holidays.
One of the most significant changes is sick leave.
Instead of becoming entitled to 10 days' sick leave after six months, employees will begin accruing sick leave from their first day of employment at 0.0385 hours for every standard hour worked, up to a maximum of 160 hours.
Bereavement leave and family violence leave will also become available from an employee's first day of employment, rather than after six months. Employees will also be able to take these forms of leave in part-days, providing greater flexibility where only part of a day away from work is needed.
Part-time employees will accrue leave in proportion to the hours they work, creating a fairer system than the current approach.
Importantly, the reforms do not reduce minimum employee entitlements. They simply change how those entitlements are earned and calculated.
A clearer test for public holidays
The current Holidays Act requires employers to determine whether a public holiday would otherwise have been a working day for an employee. This has often proved difficult where employees work changing rosters, as is common during vintage, harvest and the busy tourism season.
The Employment Leave Act 2026 introduces a clearer test for determining whether a public holiday is an "otherwise working day". For businesses with seasonal or irregular workforces, this should make it easier to identify which employees are entitled to public holiday and alternative holiday entitlements, and to pay them correctly.
Additional and casual hours
One of the most significant practical changes is the introduction of three categories of work:
- Standard hours: the guaranteed hours set out in an employment agreement.
- Additional hours: extra hours worked beyond those guaranteed hours.
- Casual hours: hours worked where there are no guaranteed hours.
Only standard hours will accrue annual leave and sick leave. Employees working additional or casual hours will instead receive a 12.5% Leave Compensation Payment (LCP) on those hours.
For Central Otago employers in viticulture, horticulture, tourism and hospitality, this is likely to be one of the most important reforms. Seasonal and casual workers may receive the 12.5% payment instead of accruing leave for those hours.
This is a trade-off rather than a straightforward improvement. Employees receive the benefit immediately through the Leave Compensation Payment rather than building up paid leave for those hours. For employers, the reforms simplify leave for irregular work patterns but create a new responsibility to correctly identify standard, additional and casual hours and ensure the 12.5% payment is applied accurately.
What this means in practice
Employers should begin preparing to:
- review employment agreements to clearly define standard hours
- review payroll processes against the new hours-based model
- ensure payroll systems can correctly identify standard, additional and casual hours
- understand when the 12.5% Leave Compensation Payment applies.
Why this matters in Central Otago
Seasonal industries are a major part of Central Otago's economy. Businesses in viticulture, horticulture, tourism and hospitality regularly rely on employees whose hours increase during harvest, vintage and the busy summer season.
Understanding how standard, additional and casual hours will operate under the Employment Leave Act 2026 is likely to be one of the biggest practical changes for these employers.
What employers should do now
Although the Bill has passed its third reading, it is not yet in force. Once it receives Royal Assent, employers will have a 24-month implementation period before the Employment Leave Act 2026 takes effect. Until then, the Holidays Act 2003 continues to apply.
Now is a good opportunity to:
- speak with your payroll provider about upcoming software changes
- review employment agreements and payroll processes against the new hours-based model
- identify how standard, additional and casual hours will be managed
- obtain clarity on your business's commencement date once it is confirmed
- seek legal advice about how the new leave categories and the 12.5% Leave Compensation Payment will apply to your workforce.
The bottom line
The Employment Leave Act 2026 is the biggest reform of New Zealand's leave laws in more than two decades.
While the long-term goal is a simpler and more transparent system, employers have two years from Royal Assent to prepare before the changes take effect.
For Central Otago businesses, particularly those with seasonal or variable-hour workforces, early planning will make the transition much smoother.
Frequently Asked Questions
When does the Employment Leave Act 2026 come into force?
At the time of writing, the Bill has passed its third reading but has not yet received Royal Assent. Once Royal Assent is granted, a 24-month implementation period will begin before the new leave regime comes into force. Until then, employers and employees must continue complying with the Holidays Act 2003.
What are standard, additional and casual hours?
The Employment Leave Act 2026 separates hours into three categories. Only standard hours accrue annual and sick leave. Additional and casual hours generally attract a 12.5% Leave Compensation Payment instead.
What is the 12.5% Leave Compensation Payment?
It is an additional payment made for eligible additional and casual hours. Instead of accruing leave for those hours, employees receive a payment equal to 12.5% of their ordinary pay.
Why has the Holidays Act been replaced?
The Holidays Act 2003 has long been criticised for creating complicated payroll calculations, particularly for employees with variable hours. The Employment Leave Act 2026 is intended to create a simpler and more consistent leave system once fully implemented.
By Karleigh Hoera, Senior Associate and Emma Tompkins, Solicitor