New Zealand’s Holidays Act has been causing problems for employers for years. Complex calculations, inconsistent entitlements, and widespread accidental non-compliance have cost businesses and employees enormously. Even large, well-resourced organizations like Health New Zealand have ended up in costly remediation situations.
If you’ve ever felt unsure whether you’re tracking leave correctly, you’re not alone. Most small businesses have been in the same position.
The good news is that change is on the way. The Employment Leave Bill, introduced to Parliament in March 2026, proposes to scrap the Holidays Act entirely and replace it with something far simpler. The changes will affect how every NZ employer tracks annual leave and sick leave, and for small businesses managing HR without a dedicated team, getting ahead of it now makes a lot of sense.
What the Employment Leave Bill is proposing
This is still a Bill moving through Parliament, not law yet, but the direction is clear and the changes are significant. Here’s what’s on the table:
Leave would accrue from day one
Under the current rules, employees aren’t entitled to sick leave until they’ve been with you for six months, and annual leave doesn’t kick in until twelve months. The Bill proposes both would start accruing from the first day of employment, including for fixed-term employees.
Everything would be tracked in hours, not weeks or days
Rather than granting leave as a lump sum, entitlements would build up continuously in proportion to contracted hours worked. For small businesses with part-time staff or variable rosters, this is a meaningful shift.
Part-day leave would become possible
Employees would use one hour of leave for every hour they take off. A two-hour medical appointment wouldn’t need to count as a full day.
Sick leave would be pro-rated for part-time employees
Entitlements would scale with actual hours worked, rather than everyone receiving the same flat allowance regardless of how many hours they do.
Casual employees would move to a 12.5% loading
This replaces the current 8% rate and would cover both annual and sick leave in lieu of standard accrual.
Transparent pay statements would be required
Every pay period would need to clearly show leave accrual. Employees would always know exactly where their balance stands.
If the Bill passes this year as intended, employers would then have 24 months to update their systems and contracts before the new rules take effect.
Why this matters more for small businesses
Large businesses have payroll teams and external HR consultants to help them navigate changes like this. Small businesses usually don’t.
If you’re managing leave in a spreadsheet, or relying on your payroll provider to hold all the data, the shift to hours-based accrual is going to require more from you operationally. You’ll need to know, at any given moment, exactly how many hours each employee has accrued, not just an annual balance that gets reset each year.
There’s also the contracts question. Employment lawyers are already flagging that many small business employment agreements simply say something like “10 days sick leave,” without referencing the Holidays Act or statutory minimums. Under the proposed pro-rated system, that wording could leave you providing more leave than the law actually requires once entitlements change. It’s worth reviewing your agreements sooner rather than later.
And when changes affect what employees are entitled to, communication matters. Part-time staff adjusting to pro-rated sick leave will have questions. Having clear, accessible records and being able to show employees their own balances avoids a lot of confusion and frustration.
How HR Partner helps you stay on top of it
HR Partner is built for small and medium businesses, teams of 20 to 500 who need to run HR properly without the complexity or cost of enterprise software. And because it’s an all-in-one system, your leave management, timesheets, employee records, performance reviews, recruitment, and employee self-service portal all live in the same place. No juggling separate tools or chasing data across spreadsheets.
Leave tracked in hours, not just days
HR Partner tracks leave balances in hours and handles continuous accrual, so when the new rules come into effect you’re not retrofitting a new system. You’re already working the right way.
Different rules for different employee types
Full-time, part-time, and casual employees can all be set up with the right leave rules for their situation. As the legislation changes, you update the settings rather than rebuilding your whole approach. For small businesses with a mix of staff, a few full-timers, some part-time, the odd casual, this flexibility matters.
Timesheets and time tracking built in
The new legislation is built around hours, which means you need a reliable record of the hours your people actually work. HR Partner’s built-in timesheets let employees log their time directly in the same system, giving you accurate data to underpin leave accrual, casual loading calculations, and compliance reporting.
Employees can see their own balances
Through the HR Partner self-service portal, employees can check their leave balance, submit requests, and see their history without having to ask you. That’s fewer interruptions for you, and fewer frustrated conversations about entitlements.
Leave requests and approvals in one place
Requests come in through the portal, managers approve them, and the balance updates automatically. Everything is tracked and auditable.
Reporting you can actually use
When the new legislation requires clearer leave records and transparent pay period statements, HR Partner’s reporting tools make pulling that information straightforward, because all the data is already in the same system.
Integrates directly with Xero
For businesses using Xero, this is a gamechanger as hours can be sent directly from timesheets into Xero and leave balances are kept in sync. This means your team has full visibility through the employee portal, and you have less admin to worry about.
What you should do right now
You don’t need to wait for the Bill to pass to start getting ready. A few practical steps worth taking now:
Review your employment agreements
Look for any leave clauses that reference specific numbers of days without tying them to the Holidays Act or statutory minimums. Your employment lawyer can advise on whether those need updating.
Get your leave tracking into a proper system
If you’re still managing this manually, now is a good time to move to something more robust. The 24-month transition period after the Bill passes sounds generous, but between system changes, contract reviews, and employee communication, it goes quickly.
Be ready to explain the changes to your team
Some employees, particularly part-timers, may see their entitlements change under the new rules. Being able to show them clearly how their leave accrues, and what they’re entitled to, will go a long way.
New Zealand’s leave system has needed fixing for a long time. The proposed Employment Leave Bill is a genuine attempt to make things simpler and fairer for employers and employees alike.
For small businesses, the shift to hours-based accrual and day-one entitlements will require updated systems and some contract housekeeping. But it’s also an opportunity to get your leave management properly sorted once and for all.
HR Partner makes that straightforward. If you’d like to see how it works, start a free 14-day trial or book a demo and we’ll walk you through it.