Health NZ $1.8 Billion Liability Drives Holidays Act Reform
Health New Zealand carries a $1.8 billion liability for past Holidays Act compliance errors. The Employment Leave Bill 2026 targets this fiscal burden with simpler rules.
"Within the technical drafting that we've done, there will be some cases where an employer would be worse off, and in some cases where an employee will be worse off."Brooke van Velden, Minister for Workplace Relations and Safety
New Zealand retail sales volumes increased 0.9 percent in the March 2026 quarter on a seasonally adjusted basis. The gain matched the December 2025 quarter and exceeded market expectations of 0.5 percent.
Business leaders report modest gains in financial positivity while overall sentiment stays near record lows, underscoring a diverging economy where export-oriented sectors gain ground and domestic-facing industries struggle under fuel-price pressures and pre-election uncertainty.
Health New Zealand carries a $1.8 billion liability for past Holidays Act compliance errors. The Employment Leave Bill 2026 targets this fiscal burden with simpler rules.
Health NZ liability exposes broken system
Health New Zealand estimates a $1.8 billion liability for Holidays Act compliance errors. The figure covers underpayments dating back to May 2010. It affects 220,000 current and former staff.
The Employment Leave Bill repeals the Holidays Act 2003. It introduces an hours-based accrual system. Annual leave accrues at 0.0769 hours per standard hour worked from day one.
Sick leave accrues at 0.0385 hours per standard hour worked. A 160-hour cap replaces the current flat 10-day entitlement after six months.
Health NZ's remediation payments to date illustrate the direct taxpayer cost of overly complex legislation:
Paid to current employees: more than $685 million
Paid to former employees: more than $175 million
Consultant and contractor spend: over $130 million
Trade-offs acknowledged by Minister
Minister Brooke van Velden addressed earlier drafts that tried to protect every worker. She said the feedback was clear.
The feedback that I had back on that draft was, “stop, this is worse than the current law”
She also noted inevitable winners and losers under the new drafting.
Within the technical drafting that we’ve done, there will be some cases where an employer would be worse off, and in some cases where an employee will be worse off.
The bill passed its first reading on 12 March 2026. The Education and Workforce Select Committee must report back by 13 July 2026.
The Education and Workforce Select Committee, which is hearing submissions on the Employment Leave Bill and must report back by 13 July 2026. Clerk of the New Zealand House of Representatives · CC BY 4.0 · Wikimedia Commons
Impact on part-time and shift workers
Unions including the PSA and NZCTU argue the changes will disadvantage part-time and shift workers. Charge nurse Mary Becker told the committee she projects a $2,700 annual loss. Shift and overtime allowances will no longer count toward leave pay.
The bill uses a single hourly leave pay rate. It excludes bonuses, commissions and penal rates. Part-time workers receive pro-rated sick leave instead of the flat 10 days.
Business groups support the reforms. They highlight reduced compliance costs and fewer future remediation exercises like Health NZ’s.
Implementation timeline and costs
The new rules take effect in 2028. This two-year window allows payroll providers and businesses to update systems.
Previous Labour Government attempts focused on expanding access rather than simplicity. The current National-led approach prioritises certainty for employers and workers.
The reforms align with efforts to control public sector spending. Successful simplification could reduce future Crown liabilities across health, education and other sectors.
Broader fiscal stakes
Every employer and employee in New Zealand faces changes. High-hour workers in essential services may see lower leave payments. Payroll system updates will create short-term costs for businesses.
Longer term, the bill aims to end the cycle of billion-dollar back-pay claims. It delivers proportionality without the current Act’s unworkable complexity.
The select committee hearings continue. Final decisions will determine whether the trade-offs deliver net savings for taxpayers or create new costs for vulnerable workers.
