Changes to the way leave is calculated and managed are coming for New Zealand employers, and there’s now a clear timeline to prepare.
The Employment Leave Bill received Royal Assent on 6 August 2026, becoming the Employment Leave Act 2026. The new Act will replace the Holidays Act 2003 from 6 August 2028.
For now, the current Holidays Act continues to apply. But the Ministry of Business, Innovation and Employment (MBIE) has recommended that employers, accountants and bookkeepers start preparing for the transition today. That includes checking payroll data and employee records, and making sure you’re using the current leave setup available in their payroll software.
Changes to payroll legislation can create a lot of questions for small businesses and their advisors. Xero has closely followed the Employment Leave reforms and, now that the legislation is confirmed, is preparing Xero Payroll for the changes and helping customers transition smoothly when they take effect.
What’s changing?
The Employment Leave Act is intended to simplify how leave is earned, taken and paid in New Zealand.
Among the changes, the new system will introduce:
- Hours-based accrual for annual and sick leave from day one
- Sick leave that is proportionate to an employee’s contracted hours
- New rules for classifying hours worked into standard, casual and additional hours which impact leave accruals / payment
- Simpler leave payment calculations
- New requirements for leave records and pay statements
Employment New Zealand has published detailed guidance on what the changes mean and how employers can prepare, as well as a suggested preparation timeline. For more detail on the reform itself, MBIE has also published an overview of the Holidays Act reform and Employment Leave Act 2026.
What is Xero doing?
Now that the legislation is confirmed, we’re putting our response into practice.
We’re already working through the changes needed in Xero Payroll to help our customers get ready for the 6 August 2028 commencement date. We’ll share more detail as that work progresses, including what will change in Xero Payroll and any steps customers, accountants and bookkeepers will need to take.
In the meantime, the current Holidays Act continues to apply, and there are useful things businesses can start doing now to make the transition easier.
Start with accurate, up-to-date payroll data
Good payroll data will make the eventual transition easier.
Employment New Zealand recommends reviewing payroll and employment data during the preparation period to identify gaps or entitlements that may affect implementation and leave conversion.
That means making sure employee information is current and addressing known issues in payroll or leave records rather than carrying them forward into the transition.
For accountants and bookkeepers running payroll on behalf of clients, it’s also worth identifying which client organisations may need attention well before 2028.
Using Xero Payroll? Check whether you need to update your leave setup
Organisations that started using Xero Payroll from 5 August 2024 already use our current employment types and leave setup.
Some organisations that started using Xero Payroll before then still need to move from the older leave setup to the current experience.
If that’s you, Xero has a conversion tool to guide you through the change. It helps you:
- Check whether any employee settings need updating
- Review and confirm employment types
- Review how existing leave balances will be converted
- Complete the move with step-by-step guidance in Xero
Most organisations complete the conversion in around three minutes.
Completing the conversion now means your organisation is using Xero’s current approach to employment types and leave under the Holidays Act, putting you in a better position as preparation for the Employment Leave Act progresses.
How the current conversion prepares you for future changes
Customers still using Xero’s older leave setup will need to move to the current leave units and employment types experience before transitioning to the future Employment Leave Act requirements.
Moving leave records from hours to weeks and days may seem unnecessary when the Employment Leave Act will introduce a new hours-based framework from 6 August 2028.
However, the current Holidays Act and the incoming Employment Leave Act work differently. The new Act introduces different rules for how leave is earned, taken, paid and recorded, so the older setup cannot simply carry over to the new model.
Making the move now allows you to review your employee settings and leave balances well before 2028, putting your payroll records in a better position for the future transition. Waiting will not remove the need to complete the current conversion.
Xero Payroll will continue supporting customers under the current Holidays Act while we prepare for the new legislation.
What happens next?
We’ll keep employers, accountants and bookkeepers updated as that work progresses, with clear guidance well ahead of the new rules taking effect.
For now, continue following the current Holidays Act, keep your payroll and employee information up to date and, if you’re still using Xero’s older leave setup, complete the move to the current experience.
Using Xero Payroll and still need to convert?
Complete your leave units and employment types conversion now.
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