The Holidays Act is being replaced: what will it cost my business in cash?

The Employment Leave Act 2026 replaces the Holidays Act on 6 August 2028. For a steady permanent team, the leave itself costs roughly what it does now. What changes is when the cash leaves your account: a 12.5% leave compensation on casual and extra hours every pay, a payout of casual staff’s holiday balances at commencement, and payroll and remediation bills to settle before then.

Mr has read the official explainers so you don’t have to. Here’s where the money moves, and how to plan for it while you’ve still got nearly two years.

What actually changes in 2028?

The headline is simple: leave moves from weeks and days to hours. According to MBIE’s explainer:

• Annual leave accrues from day one at no less than 0.0769 hours per standard hour worked. That works out to four weeks a year for someone whose hours don’t change.
• Sick leave accrues from day one at no less than 0.0385 hours per standard hour, with a 160-hour cap. Part-timers now earn sick leave in proportion to their hours, rather than getting the same 10 days as full-timers.
• Casual hours, and additional hours worked beyond standard hours for extra pay, don’t accrue leave. Instead they attract a leave compensation payment (LCP) of 12.5% of the ordinary hourly rate, paid in the same pay period.
• All leave is paid at one hourly rate, based on the lowest hourly rate for the shift the leave is taken from. Fixed allowances still get paid in full, but commission, bonuses and variable allowances drop out of leave pay.
• Cashing up annual leave goes from one week a year to up to 25% of the balance, outside the first 12 months, if you and the employee agree.

Until commencement, nothing changes. Employment New Zealand is blunt about it: “You cannot start following the new law early, even if you are ready.”

Mr says: Two years sounds like plenty. It isn’t, if your payroll software can’t cope, your agreements need renegotiating and your leave records have been quietly wrong for years.

Where will the cash actually go?

Here’s Mr’s map of the cash moments, from the official material, in rough order of when they’ll hit.

Cash moment	When it lands	Who it affects most
Payroll software upgrade or switch	Any time before August 2028	Small employers on older or off-the-shelf systems
Fixing past Holidays Act underpayments	Now, or through the new statutory process	Anyone with variable hours, allowances or commission
Payout of casual staff’s existing annual holiday balances	At commencement, August 2028	Hospitality, retail, events, horticulture
12.5% LCP on casual and additional hours	Every pay period from August 2028	Rosters with lots of casuals or extra shifts
Larger cash-up requests (up to 25%)	Each year, if you agree	Long-serving staff with big balances

The 12.5% top-up shifts cost forward

Under the Holidays Act, the leave value of overtime and extra shifts often shows up later, as higher leave pay when someone takes a holiday. Under the new Act, it’s paid in the same pay period the hours are worked. Same idea, earlier cheque.

For casuals currently on pay-as-you-go holiday pay at 8% of gross earnings, the LCP is 12.5% of the ordinary hourly rate. On ordinary-rate hours, that’s a bigger amount each pay. In return, it replaces sick leave as well as annual leave. Your wage bill on those hours goes up week by week, while your future leave liability goes down.

The commencement payout

MBIE’s explainer says that for employees who work casual hours, existing annual holiday entitlements will be paid out on commencement. If you have casual staff who’ve been building up holiday entitlements rather than getting 8% each pay, that’s a lump sum due in the same month. August is the middle of winter, which is a quiet trading month for plenty of tourism and hospitality businesses.

Remediation doesn’t go away

The new Act doesn’t wipe the slate. MBIE says employers keep the obligation to correct historical underpayments, and the Act creates a new statutory remediation option covering the six years before commencement. Some details will be set in regulations. Leave balances get converted to hours at commencement, so an error in your balances now will follow you into the new system.

What might get cheaper?

It isn’t all outgoings. MBIE’s own worked examples point to some savings:

• Part-time sick leave: a 20-hour-a-week employee accrues 40 hours of sick leave a year, rather than 10 full days.
• Commission and variable pay drop out of leave pay, so leave costs for sales staff ease slightly.
• Fewer complex calculations: there’s one hourly leave rate, and no more “what’s a week for this person?” arguments.
• Cash-ups reduce liability: if you agree to a larger cash-up, the balance comes off your books. It costs cash on the day, though.

Mr’s rule of thumb: the Act tends to cost less on paper but needs cash sooner. Your profit may not change much, while your bank balance in August 2028 could.

How do I work out my own number?

Pull three reports from payroll and spend an hour on them:

1. Casual hours over the last 12 months, by employee. Multiply the ordinary-rate hours by the hourly rate and by 12.5%. Then subtract the 8% holiday pay you already add for anyone on pay-as-you-go. The gap is the ongoing weekly increase.
2. Current annual holiday balances for every casual. Their dollar value is roughly what you’d pay out at commencement.
3. Additional hours for permanent staff. Multiply them by 12.5% of the ordinary rate. That’s cash you’ll pay each period instead of later through leave pay.

Add a quote from your payroll provider for the upgrade, and an estimate from your accountant or payroll specialist on any remediation. Then drop the lot into your twelve-month cash flow forecast, in the months the money will actually leave.

If you’re working through this now and can already see a gap, check whether your business qualifies for funding. It takes about a minute and won’t touch your credit file.

An illustrative example

This example is invented to show the method. It isn’t a real business, and the figures are not from any real file.

A Wellington café runs 4 permanent staff and 8 casuals. Most of the casuals have been paid holiday pay at 8% each pay (pay-as-you-go), but 3 longer-standing casuals have built up annual holiday entitlements instead. The owner, Sam, does the three-report exercise in October 2026:

• Payroll: the current software provider has no upgrade plan, so Sam budgets for a switch and some double running in early 2028.
• Remediation: a payroll specialist finds that two staff who regularly earn penalty rates were underpaid when they took leave. It’s fixable, and cheaper to fix now than later.
• Commencement payout: the 3 casuals’ holiday balances would be paid out in August 2028, which is the café’s quietest month.
• Ongoing: moving 5 casuals from 8% to the 12.5% LCP adds a small amount to every fortnightly pay run.

None of these is a disaster on its own. Together, they all land in a winter quarter, which also tends to bring a provisional tax instalment and the year’s slowest takings. Sam’s plan is to fix the remediation now, put the payroll switch on the 2027 budget, and arrange a facility well ahead of the August 2028 payout rather than in the week it’s due.

What should I do between now and 2028?

Employment New Zealand’s employer checklist, translated into Mr’s plain English:

• Ask your payroll provider whether its software will support the new rules. The official guidance says that if it can’t, “you may need to consider moving to a new provider”.
• Fix your leave records now. Balances convert to hours at commencement, so get them right first.
• Review employment agreements. You have until 6 August 2029 to bring them into line. You can’t change them without discussing and agreeing them with employees first.
• Get your hours right in writing. Standard hours drive accrual, so agreements should show what people actually work.
• Check your closedown plan. Under the new Act, an annual closedown needs 21 days’ written notice, up from 14. If you shut down over summer, our Christmas shutdown cash plan covers the cash side.
• Budget next to the other employer cost steps. KiwiSaver goes to 4% in April 2028, just four months before this, as covered in what the KiwiSaver rise really costs.

Mr says: If you’re buying or selling a business before 2028, ask how leave balances will be handled. Under the new Act, transferring leave to a new employer has to be negotiated and the liability split. That’s worth reading about in borrowing to buy a business.

When does funding make sense, and when doesn’t it?

Borrowing isn’t the answer to a permanent cost increase. If the 12.5% top-up squeezes your margins every week, that’s a pricing and rostering job.

But the Employment Leave Act creates some genuine one-off, timing costs where funding can be sensible:

• a lump-sum payout of casual holiday balances in a quiet month;
• a remediation settlement you’d rather pay in one go than drag out;
• a payroll system change, plus the double running while you switch;
• several costs stacking up in one winter quarter.

If PAYE or KiwiSaver deductions are already slipping, deal with that first. I’m behind on PAYE and KiwiSaver explains why. For a quick sense of where your business stands, try the funding readiness check.

Ask Mr before August 2028 sneaks up

Employment law changes are the sort of thing that sit in the “later” pile until a payroll provider sends an invoice, or the commencement payout lands in the slowest month of the year. Mr’s advice is to put a number on it now, while you’ve got time to plan.

If that number shows a gap, Mr can help you look at options, from unsecured funding sized on your turnover and bank statements to property-secured loans from $20k to $5m. Asking takes about 60 seconds, and there’s no credit check at the enquiry stage. We won’t send your details to a pile of lenders, so you won’t be fielding calls all afternoon. A real specialist reads what you’ve sent and rings you to talk it through.

One request: fill the form in as accurately as you can. Tell us about your team size, any IRD arrears and what the money is for, so the first option you hear about is one that fits.

See if your business qualifies →