Associate’s Opinion: Ange Cook
Few would disagree that the Holidays Act 2003 needed reform. Its complex calculation methods and underlying assumption of a traditional 9-to-5 working week created significant compliance challenges for employers and confusion for employees. As work patterns have become increasingly flexible and varied, the limitations of the current framework have become more apparent.
To address these longstanding challenges, the Employment Leave Act 2026 (‘the Act’) received Royal Assent on 6 August 2026 and will replace the Holidays Act on 6 August 2028. The new rules will apply to each employee from the beginning of their first pay period starting on or after that date. The two-year lead-in period is intended to give employers and payroll providers sufficient time to prepare for the change.
Some of the key changes include a shift to a predominantly hours-based system, under which annual leave and sick leave will accrue from day one based on an employee’s standard hours of work. The Act distinguishes between standard hours, additional hours, and casual hours, although applying those definitions will depend on the employee’s contractual and practical working arrangements.
A Leave Compensation Payment will generally be payable for qualifying additional and casual hours instead of annual and sick leave accruing on those hours. The payment is calculated at 12.5% of the employee’s defined ordinary hourly rate for each qualifying hour and is payable in addition to wages and other applicable payments.
The Act provides greater flexibility by allowing annual and sick leave to be taken in hours. Annual leave is taken against standard hours, while sick leave may also be taken against certain rostered additional hours. Bereavement and family-violence leave remain day-based but can be taken in part-days. The Act also introduces an updated ‘Otherwise Working Day’ test for public-holiday and alternative-leave entitlements, alongside revised leave-payment rules. Annual leave following parental leave will be taken and paid in the same manner as other annual leave. Pay statements will require additional prescribed information.
The new framework may appear straightforward, but in practice there are still complexities that will need to be considered and worked through for different types of employment arrangements. The transition is likely to be significant. Employers will need to review employment agreements, rosters, payroll systems, and ensure their processes and policies align with the new requirements. There is also the possibility of further legislative refinement before implementation, particularly if there is a change in government. It is also important to note that employers cannot adopt the new regime before 6 August 2028.
For employers, the key message is to start preparing early. Working closely with professional advisers, employees, and payroll providers to develop implementation roadmaps over the next two years will help ensure organisations are ready for the go-live date.
