MBIE’s simplified leave rules quietly cut pay for commission earners

The rate that just got a lot lower

The Employment Leave Act received Royal Assent on 6 August 2026 and comes into force on 6 August 2028, replacing the Holidays Act 2003 that has cost New Zealand employers a fortune. Most businesses will find the new rules simpler. But for any workplace where staff earn overtime or commission, the reform quietly rewires how leave is paid, and not in the worker’s favour.

Under the current law, annual leave is paid at the higher of ordinary weekly pay or average weekly earnings over 52 weeks, a calculation that sweeps in overtime, commissions and some bonuses. Under the new Act, leave is paid at the employee’s lowest hourly rate for the day leave is taken. As Hesketh Henry partner Jim Roberts put it in May 2026, “holiday payments are going from being calculated on everything earned to being calculated on the lowest possible rate.”

MBIE’s technical guidance is blunt: the leave hourly rate “does not include any productivity-based or incentive based payments (including commission).” For a worker paid largely on commission who can’t agree a leave payment rate with their employer, the fallback is minimum wage per hour of leave.

Who takes the hit

Hesketh Henry’s Alison Maelzer told RNZ that for workers who do a lot of overtime or earn significant commissions, “this will make a noticeable difference to the pay that they receive during annual leave.” The May 2026 example is stark: an employee earning 80% of their income through commission currently has holidays calculated on their full earnings; under the new Act, the 80% commission component vanishes from the calculation entirely.

The exposed sectors are exactly the ones B2B News readers run: retail and supermarket staff on minimum-hour contracts who work extra hours, commission sales teams, trades workers on overtime, port and manufacturing shift workers, and hospitality. The government’s own Regulatory Impact Statement put around 284,800 employees, 12% of the workforce, on variable hours, with 9 to 12% of workers receiving overtime pay.

The liability nobody is talking about

The media framing has been worker-focused. The sharper business problem is the reverse. If leave becomes too expensive to take, staff stop taking it, and, as Maelzer warned, “leave liability for employers increases.” Untaken leave sits on the balance sheet and gets paid out at termination. Years of accrued leave can land as a single lump sum when a worker walks.

Workers First Union’s Callum Francis told RNZ that people “are going to cash it up because they’re low on money” rather than take a break. Either way, the employer is on the hook.

Your contracts just became load-bearing

Because leave now pays at the lowest hourly rate for the day, the hours and rates written into employment agreements directly set leave pay. University of Otago associate professor Paula O’Kane told RNZ employers “might need to think more carefully about having more accurate contracts and more consistent contracts so that gets paid properly.”

That is the operational crux. Businesses that wrote minimum-hour contracts and then routinely rostered people for more are exposed, because the contracted minimum becomes the leave baseline. Commission workplaces face a second job: negotiating a leave payment rate with each affected worker, with minimum wage as the ugly default. Deloitte and KPMG have both urged employers to start updating payroll systems early, with KPMG flagging that the changes “demand significant operational adjustments.”

Why the reform still makes sense

None of this means the old law should have survived. The current Holidays Act was a compliance disaster. Health NZ alone paid more than $544.2 million in remediation to 72,296 employees by August 2025, part of a total estimated liability of $2.2 billion across all sectors. Labour Inspectorate breach cases rose 45% in a year to 2,013 in 2023/24. The EMA’s Alan McDonald, in September 2025, called the old Act “hugely complex” and said it had cost some businesses tens of millions.

For a straightforward salaried or waged workforce, the new hours-based accrual model is genuinely simpler, and workers get real wins too, including sick leave from day one. The point is that simpler is not free for everyone.

The 24 months are the whole game

The transition window to August 2028 is not buffer time. It is the period in which employers must audit agreements so contracted hours reflect reality, negotiate leave payment rates with commission staff, and rebuild payroll systems. Any business that has already sat through Holidays Act remediation knows the cost of getting this wrong. The reform is designed to stop the next round of that, but only for employers who use the two years to fix their contracts before the rules do it for them.

Sources

• People are going to ‘lose hundreds of dollars a week’ taking leave, union warns (2026-08-17)
• Why commission-earners are set to receive the ‘lowest hourly rate’ of pay (2026-05-07)
• Regulatory Impact Statement: Holidays Act Reform (2025-07-07)
• How the Holidays Act overhaul will change sick leave rights and how time off is paid (2025-09-24)
• Employers back plan to replace Holidays Act, unions push back (2025-09-23)
• Holidays Act overhaul: Changes to annual leave, sick pay system (2025-09-23)
• Holidays Act reform | KPMG NZ