The Government had signalled that they intended to overhaul the Holidays Act 2003 because the current framework was too complex, and employers were frequently miscalculating employee’s entitlements. These errors had resulted in some employees not receiving what were owed, and employers are now need to work through these historic problems and are faced with large remediation payments to current, and former, employees.
The Government has recently passed legislation that is designed to reimagine the way in which the various leave entitlements are accrued, taken, and paid.
The Employment Leave Bill passed its third and final reading in Parliament and received Royal Assent on 6 August 2026.
The changes that are coming
Under the existing framework, employees become entitled to four weeks of annual leave after 12 months of continuous employment, and 10 days sick leave per year once they have been working for 6 months. This is the position regardless of whether employees work full time or part time.
Under the new framework, this will change. The key changes that employers and employees must be aware of is that:
- Employees will be able to access annual, sick, bereavement and family violence leave from the day one of their employment;
- Leave moves from being calculated in in “weeks and days” to an hours-based system. This means that for part-time employees, their entitlements will accrue proportionate to the hours that they have worked.
- Leave is only accrued for “standard hours”. Anything over and above standard hours will accrue an upfront 12.5% leave compensation payment in lieu of annual and sick leave. The same will apply for casual workers.
- Public holiday entitlements will apply to all employees if the new “otherwise working day” test is met, and alternative holidays will also shift to hours-based accrual.
- Payment for leave will be simplified, so that leave will simply be paid at the lowest hourly rate for the day leave is taken.
- Removal of the annual leave payment penalty for those returning from parental leave.
- There will also now be a greater flexibility for employees to cash up their annual leave, with the ability to cash in up to 25% of their total annual leave balance every year.
The new framework will arguably have the largest impact on part-time employees, who will no longer receive the same entitlements as full time employees, and will instead receive their entitlements proportional to the hours that they work.
What it means for you
In terms of timing – there will be a 24-month transition period before the new system comes into force on 8 August 2028. In the meantime, the current Holidays Act framework will continue to apply.
While there is no immediate change, it would be wise to start thinking about taking steps towards preparing for this change when it does come in.
For employers, it would be good to start thinking about how you will update any new employment agreements so that they are ready for when this change comes in. It is also worth checking in with your payroll provider to understand how systems will change, and make sure you understand what needs to happen at your end.
We are also mindful that the transition date will likely fall outside the usual negotiation timeframes for many collective agreements, and therefore this might be something that needs to be pre-emptively considered.
We recommend that employers, unions, and employees take the time to understand the new provisions to ensure that they understand the new law. Preparing early will make the transition easier in 2028. Please reach out to our employment team if you need any legal advice throughout this rather massive overhaul of the way we calculate leave entitlements.
