If the Employment Leave Bill is enacted, this would replace the Holidays Act 2003 – and create some significant change for employers.

What is the Employment Leave Bill?

The Employment Leave Bill is a Bill that would replace the Holidays Act 2003. It outlines the way employee leave would be accrued, introduced standardised leave payment rules, a Leave Compensation Payment, and new tests and flexibilities.

It was introduced to Parliament on 9 March 2026, has passed its first reading and is now at the Select Committee stage. It’s anticipated the Government will want to have it passed before the election.

If enacted, employers will have two years to move to full implementation, but given the change, it’s well worth starting to consider how you might approach it.

What are the key changes?

There are some significant changes proposed, including:

Shift to hours-based accrual

Currently annual leave and sick leave entitlements are based on weeks or days. The Bill shifts that to an hours-accrued model, where leave balances would grow in proportion to the number of hours worked from day one of employment; meaning employees no longer need to wait to be entitled to annual or sick leave.

• Annual leave would accrue at a minimum of 0.0769 hours for every standard hour worked
• Sick leave also accrues in hours (no more blanket 10 day entitlement and no need to wait six months for entitlement)
• Accrual would continue during periods such as parental leave or jury service, but not during unpaid leave.

Implications: This provides more predictable and equitable accrual across variable work patterns (part-time, shift work, irregular hours), but businesses will need systems that track and report hours consistently. Businesses may also need to consider how they track hours of work, particularly for salaried employees not subject to a timesheet.   

Standardised leave payment rules

Under the Bill, leave would be paid at a consistent hourly rate, replacing the multiple calculation methods currently required. This includes:

• Salaried employees getting a clear hourly equivalent rate for leave pay
• Fixed allowances being included in full during leave

Implications: Payroll complexity should reduce, with fewer special cases and exceptions to manage. It’s like that systems and processes will require updates.

Leave Compensation Payment

The Bill introduces a Leave Compensation Payment of 12.5 per cent for:

• Casual employees, instead of them accruing annual or sick leave; and
• Additional hours worked beyond contracted standard hours for other employees.

Implications: Casual workers receive clearer entitlement through the LCP (akin to pay-as-you-go) and overtime or irregular hours no longer create complicated leave accruals– but employers will need to implement and track LCP payments correctly.

New tests and flexibilities

The Bill includes:

• A new test for what constitutes an “otherwise working day”… currently, under the Holidays Act 2003, whether a public holidays counts for an employee depends on whether the employee would have worked on that day if it had not been a public holiday. That assessment currently uses a broad set of factors – agreement terms, work patterns, reasonable expectations – and it can be hard to apply consistently especially for variable or irregular hours workers.
  Under the Employment Leave Bill, for employees without fixed days or a specified pattern of work, a day will be treated as an otherwise working day if the employee has worked (or was on paid or unpaid leave) for 50 per cent or more of the same day of the week as the public holiday over the preceding 13 weeks.
• Hourly accrual of alternative holidays for working public holidays
• A formal process for cashing up up to 25 per cent of annual leave annually.

Implications: These changes provide flexibility but will require clear policies and employee communication.

The Bill is yet to become law – is there anything employers should do now?

While the Bill has only passed its first reading, and there will be a two-year implementation period once/if it is enacted, it’s worth putting some consideration into how you might practically implement the changes now – because they will require big change and comprehensive thinking.

Compliance and payroll systems

• Review payroll systems and ensure they can manage hour-based accrual capability
• Ensure time and attendance systems can capture necessary data consistently

Employment agreements and policies

• Review your employment agreements and note the clauses that will require updating to reflect new leave accrual and payment rules
• Consider which policies will need updated, especially on public holidays, alternative holidays and leave cash-ups

Communication and education

• Consider how you might communicate changes with employees. Staff will need a clear explanation of how leave balances and pay will work under the new system once implemented.

We’ll keep you updated as it all progresses with some practical tips.

In the meantime, here’s a comparison table of what could be changing: