Employment Leave Act 2026

As you may have seen in recent news, the Employment Leave Bill passed its third and final reading on 29 July 2026. It is now awaiting Royal assent, after which it will become the Employment Leave Act 2026.

The new legislation will replace the Holidays Act 2003 and introduce significant changes to how leave is earned, recorded and paid. Most provisions will come into force on the second anniversary of Royal assent, giving employers a two-year formal implementation period.

The exact commencement date will be confirmed once Royal assent is officially recorded. Until the new legislation commences, the Holidays Act 2003 continues to apply.

The key transition points for most employers will be:

• Until the main commencement date: the Holidays Act 2003 continues to apply.
• From the main commencement date: the new Employment Leave Act framework applies.
• By the first anniversary of commencement: employment agreements entered into before commencement must comply with the new framework.

The Bill provides for changes including:

• annual and sick leave accruing in hours from the first day of employment;
• bereavement and family violence leave being available from the first day of employment;
• a single hourly rate for calculating leave payments;
• a 12.5% Leave Compensation Payment for additional and casual hours; and
• mandatory pay statements showing pay and leave information.

No immediate changes should be made to current leave calculations or statutory entitlements. Employers should continue applying the Holidays Act while using the implementation period to understand the effect of the new framework and prepare for transition.

What employers should start doing

1. Review new employment agreement wording
Avoid issuing new individual employment agreements that lock the current statutory leave entitlements into the agreement as permanent contractual benefits.

For employees starting before the new legislation commences, consider wording that provides leave entitlements in accordance with the Holidays Act 2003 or any legislation that replaces it.

Alternatively, if current entitlements are described, make it clear that they reflect the legislation currently in force and will be replaced or amended when the new legislation applies.

Employers should also develop a compliant agreement template for employees whose employment will begin on or after the commencement date.

The central distinction will be:

• employees starting before commencement begin under the Holidays Act and transition to the new legislation;
• employees starting on or after commencement enter the new framework from their first day; and
• agreements entered into before commencement have a one-year alignment period, during which a more favourable equivalent contractual term prevails.

2. Review existing employment agreements
Compare each employee’s existing or historical employment agreement wording with the entitlements under the new legislation.

This review should identify:

• whether the agreement simply refers to the applicable legislation or expressly creates a specific contractual entitlement; and
• any enhanced entitlements or differences between agreement versions that may provide individual employees with a more beneficial contractual entitlement.

During the first year after commencement, employers must comply with both the new legislation and employment agreements entered into before commencement. If an agreement term is more favourable than the equivalent term under the legislation, the more favourable agreement term prevails.

By the first anniversary of commencement, those agreements must comply with the new framework. Enhanced benefits do not necessarily need to be removed, but they will need to be expressed in a compliant form. For example, an enhanced sick-leave entitlement may be retained but converted into an appropriate hourly accrual.

Employers should not assume that the new statutory minimum gives them a general right to impose a reduction to an existing contractual benefit. Any proposed variation will need to be considered and agreed appropriately.

3. Analyse the workforce and cost impacts
Consider:

• whether employees currently described as casual are genuinely employed on a casual basis;
• the cost difference for casual employees between the current 8% holiday pay and the proposed 12.5% Leave Compensation Payment—an increase of 4.5 percentage points;
• the additional 12.5% payment on additional hours, including the potential effect of regular overtime or hours worked above 40 per week;
• how the changes could affect overtime, rostering and overall employment costs;
• whether the business will apply the new pro-rated sick-leave entitlement to part-time employees or retain an existing higher entitlement as an enhanced contractual benefit; and
• the cost of retaining enhanced benefits contained in current or historical employment agreements.

Employers should also begin identifying how employees’ hours are likely to be classified as standard, additional or casual under the new framework.

4. Prepare for leave-balance conversion
When the new system commences:

• annual holidays held by employees working standard hours will be converted from weeks into hours;
• sick leave held by those employees will be converted from days into hours;
• alternative holidays will be converted into hours;
• previous annual holidays held by employees working casual hours must be paid out using the applicable Holidays Act calculation; and
• previous sick leave held by employees working casual hours will cease without payment.

Employers should ensure that employee start dates, working patterns and leave records are complete and accurate. An unreliable starting position will make conversion more difficult and increase the risk of errors.

Certain transition rights will also depend on each employee’s first employment anniversary after the commencement date; employers will therefore need to identify and manage some transition dates individually.

5. Engage with payroll providers early
Regardless of whether payroll is managed internally or externally, employers should establish:

• whether the system can distinguish between standard, additional and casual hours;
• how existing leave balances will be converted;
• whether the system can calculate the 12.5% Leave Compensation Payment;
• how mandatory pay-statement requirements will be met;
• when the required system changes will be available for testing; and
• what information or configuration decisions the provider will require from the employer.

Payroll providers will be implementing changes for many clients at the same time. Employers should not assume that all decisions and configuration work can be left until shortly before commencement.

6. Develop a change-management plan
Identify what will need to be reviewed or updated, including:

• leave policies and procedures;
• individual and collective employment agreements;
• employment agreement templates;
• payroll and time-recording systems;
• leave records and conversion processes;
• budgets and workforce-cost assumptions;
• employee communications; and
• guidance and education for managers.

The transition is likely to require input and decisions from management, finance, payroll and HR, together with those responsible for employee communications and manager education.

The immediate priorities are to:

1. identify who will lead the transition;
2. understand the impact on different employee groups;
3. identify contractual entitlements that may exceed the new statutory minimums;
4. model the likely payroll and workforce costs;
5. confirm the payroll provider’s implementation plans; and
6. establish a structured implementation timetable leading up to commencement.

Further updates
We will provide further updates once Royal assent and the exact commencement date are officially recorded, and as MBIE publishes implementation guidance, conversion information and regulations.