By EMA Head of Advocacy and Strategy Alan McDonald
The government is on the brink of fixing one of our most frustrating and confusing pieces of employment law.
For years, the Holidays Act 2003 has been recognised a minefield of complexity, legal risk, and unintended cost for both employers and employees.
It has confused the most diligent businesses with complex calculations and compliance headaches, while leaving workers unsure of what they were entitled to or when.
In late September, we saw the shape this new legislation will take when Workplace Relations and Safety Minister Brooke van Velden announced the proposed reforms at our EMA headquarters.
These will provide the foundation for the first draft of legislation, which will likely be released for public consultation and submissions early in the new year.
The current law was built around an employment landscape world that has changed with variable hours, hybrid working, and flexible contracts now the norm.
The new framework looks to deliver a system that is simpler, fairer and far easier to navigate for all types of work.
At the heart of the reform is the shift to an hours-based accrual system for annual and sick leave. Rather than waiting six or 12 months before leave starts to build up, entitlements now begin on day one, accumulating with every hour worked.
This simple change reflects modern work realities, where part-time and variable-hour arrangements are common. Employers gain a clear, consistent formula, and employees get more flexibility.
Leave can now be taken in part-days or even part-hours, meaning workers can take time off when they truly need it without burning a full day’s entitlement. That’s a win for fairness.
One of the best features of the proposed Act is its sense of balance. For employers, it simplifies payroll systems, removes overlapping calculations, and reduces compliance costs. For employees, it ensures leave rights are linked directly to the hours they work.
The new leave compensation payment of 12.5% for casual and additional hours worked replaces the previous 8% “pay-as-you-go” approach.
Workers see an immediate uplift in pay for each hour worked beyond their standard hours while employers gain a predictable, transparent cost structure.
Even the long-criticised “parental leave override”, which often penalised parents returning from leave with reduced holiday pay, is gone. Under the new proposals, parents will be paid their normal rate for annual leave after returning to work. That’s a family-friendly outcome to support.
Another long-overdue fix is the clear test for determining whether a public holiday is an “otherwise working day”. Instead of a subjective, case-by-case debate, there will be a simple rule: if an employee has worked at least half of those days in recent weeks, the holiday counts. It’s easy for employers to apply and easy for employees to understand.
Mandatory, itemised pay statements will also become standard, ensuring both employers and staff understand exactly how leave and pay are calculated. For an area that causes confusion, that’s a welcome step.
Every reform comes with trade-offs. Some part-time employees will see a reduction in sick leave compared with the current flat allocation. And employers will face transition costs as payroll systems and employment agreements are updated. But these are short-term challenges for a long-term gain: a leave system that works.
We also support the two-year implementation window for the new Act. It gives businesses time to prepare, adjust and get it right. There are significant changes that employers will have to manage in that two-year that will affect contracts, previously accrued leave and leave payments for commission staff in particular.
The EMA can help with those. But, once in place, the new system should last, regardless of changes in government.
For the EMA, this reform is the culmination of years of advocacy and we’ve been working closely with MBIE and the Minister to present the views of the business community.
We’ve also just taken a roadshow around the middle and upper North Island, to drill down into the details with our members. There will be more to come when the draft legislation is made public in early 2026.
It’s proof that when business and government work together with a shared goal there are mutual benefits.