2026 Employment Law Update - What NZ Employers Need to Know

Employer Human Resources

2026 Employment Law Update
What New Zealand Employers Need to Know

As we move through 2026, there are some significant employment law changes coming that will affect how you manage your workforce. Understanding these developments is essential to maintaining compliance and supporting your people effectively.

Here at Talent ID Recruitment, we're committed to ensuring our clients are well-prepared for what's ahead. This update outlines the key legislative changes and what they mean for your organisation.

Employment Relations Amendment Bill (Expected Early 2026)

The Employment Relations Amendment Bill has progressed through Select Committee and is expected to pass into law in early 2026. While controversial, with significant opposition from unions and Labour, the Government is pressing ahead. These changes will fundamentally shift how employment relationships are managed in Aotearoa.

Contractor Classification – The New Gateway Test

One of the most significant changes is the introduction of a five-factor "gateway test" to determine whether a worker is a contractor or employee.

Under the new framework, a worker will be classified as a specified contractor, (and therefore not an employee) if all five criteria are met: written agreement stating they're an independent contractor, ability to work for other people or businesses, ability to subcontract their work to others, no day-to-day supervision or direction, and provision of their own tools and equipment.

Workers who meet all five criteria cannot challenge their contractor status. Those who don't meet all criteria can still have their status assessed under existing employment law tests. For organisations using contractors, freelancers, or seasonal workers, this requires careful review. While the gateway test may provide greater certainty in some cases, many existing contractor relationships may not meet all five criteria, particularly around the ability to work for others or subcontract work.

High Earner Threshold for Unjustified Dismissal Claims

One of the most significant changes in the Employment Relations Amendment Bill is the introduction of a “High Income Threshold” for unjustified dismissal claims. Originally proposed at $180,000 base salary, the Select Committee has now recommended this be set at $200,000 based on “total remuneration.”

This shift to “total remuneration” is critical. An employee might have a base salary of $170,000 and believe they’re safe from this threshold. However, when you add KiwiSaver contributions, vehicle allowances, health insurance, and potential performance bonuses, they could easily reach the $200,000 total remuneration mark. The moment an employee crosses that threshold, they lose the statutory right to claim unjustified dismissal.

In practical terms, this means an employer could potentially dismiss a high-earning employee without providing a substantive reason or following a fair process, and the Employment Relations Authority would have no jurisdiction to help. They’ll retain protection against discrimination and bullying, but not for unjustified dismissal.

The opt-in provision: The legislation does allow employers and employees to agree to “contract back in” to the unjustified dismissal protections. This makes strategic negotiation at the point of hire or during contract updates absolutely critical.

Employment law specialists are now recommending high-earning employees negotiate protective clauses into their employment agreements, including: a “Contractual Just Cause” clause requiring the employer to provide a valid reason and follow a fair process to terminate; “Golden Parachute” liquidated damages provisions (such as six months’ salary payable immediately if terminated without cause); and enhanced notice periods of six to nine months rather than the standard three months, providing runway to secure the next role.

There's a 12-month transition period for existing employees earning above this threshold, giving organisations time to negotiate any additional terms with affected senior staff.

For organisations with senior leadership roles, this presents both opportunity and risk. While it may provide more flexibility in managing underperforming executives, the lack of statutory protection could make it harder to attract top talent who may view this as weakening their employment security. Consider whether opting senior employees back in to unjustified dismissal protection might be a strategic advantage in your recruitment and retention efforts.

Changes to Personal Grievance Remedies

The Bill significantly alters how personal grievance remedies are assessed. Key changes aim to reduce compensation when employees contribute to their own grievance.

These changes include: removing remedies entirely for serious misconduct, capping compensation for contributory behaviours.

• If an employee is dismissed for serious misconduct, no remedies will be available.
• For lesser misconduct, remedies can be reduced by up to 100% (currently capped at 50%), with no compensation for hurt and humiliation, loss of benefits, or options for reinstatement if the employee has contributed to their grievance. However, compensation for lost wages may still be available.

Importantly, "serious misconduct" isn't defined in the Bill, creating uncertainty about where this threshold sits. While this may encourage organisations to take firmer stances in dismissal processes, there's significant risk if you've mischaracterised the conduct. Other claims, such as breach of good faith may still be available. We strongly recommend taking legal advice before relying on these provisions.

Removing the 30-Day Rule

For organisations with collective agreements, the requirement to employ new staff on collective agreement terms for their first 30 days is being removed. Instead, you'll need to provide information about the union and collective agreement (including a copy of the agreement), and notify the union about new employees with their consent.

This provides more flexibility to negotiate individual terms from day one, including trial periods. However, it may impact union membership and relationships. Consider how this aligns with your organisational values around collective bargaining and worker voice, particularly if partnership with unions is important to your kaupapa.

Holidays Act Overhaul (Draft Legislation Q1 2026)

The Government has confirmed it will repeal the Holidays Act 2003 and replace it with a new Employment Leave Act. Draft legislation is expected in the first quarter of 2026, with the aim of passing it before this year's general election. The current Holidays Act has been a compliance nightmare, with widespread payroll errors and costly remediation processes. The new framework aims to provide much-needed simplicity.

Key Proposed Changes
Hours-based system: Annual leave and sick leave will accrue from an employee's first day of employment, moving to an hours-based system rather than the current days-based approach. Annual leave will accrue at 0.0769 hours per hour worked (equivalent to four weeks per year).

Simplified calculations: An hourly leave pay rate will be used for all leave types, replacing the current variety of calculations for different situations. This should significantly reduce the complexity that has caused so many compliance headaches.

Casual employees: Casual employees will no longer receive 8% pay-as-you-go holiday pay. Instead, they'll receive 12.5% leave compensation on all earnings.

Greater flexibility: Employees will be able to cash up to 25% of their annual leave balance each year upon request. Rules around public holidays, bereavement leave, and family violence leave will be clearer, with some entitlements available from day one.

Implementation Timeline and Actions

Once the legislation passes, there will be a 24-month transition period to enable payroll providers and employers to update their systems. During this transition, existing leave balances for standard-hours employees will need to be converted to hours, and casual employees' annual and alternative holiday balances will be cashed up.

Importantly, the obligation to correct historical non-compliance with the current Holidays Act will continue, though the Minister has indicated there will be a statutory mechanism to help employers estimate liability and resolve historical remediation more efficiently.

What to do now: While you don't need to make immediate changes, start planning. Engage with your payroll provider about their readiness, review your current leave policies to identify what needs updating, and consider how the shift to hours-based calculations will affect your workforce, particularly those with variable hours.

Privacy Act Amendment (1 May 2026)

A new Information Privacy Principle (IPP 3A) takes effect on 1 May 2026, bringing New Zealand's privacy standards into line with Australia and the European Union.

Currently, organisations don't have to tell people when they collect their personal information from third parties. Under IPP 3A, if you collect personal information about someone indirectly, for example, from a background-check provider, referee, or recruitment agency, you must notify the person concerned and tell them what information was collected and why.

There are limited exceptions, such as when the information is already public, notification would be impractical, or alerting the individual would undermine their interests or create a serious risk to safety. Penalties may apply if you fail to meet these obligations.

Action required before 1 May: Review your recruitment and background-checking processes to identify where you collect information indirectly. Update your privacy policies to reflect the new obligations. Implement systems to notify individuals when collecting their personal information from third parties. Train your people leaders and HR staff to recognise when notification is required.

KiwiSaver and Minimum Wage Increases (1 April 2026)

KiwiSaver Contribution Increase

From 1 April 2026, the default KiwiSaver contribution rate increases to 3.5% for both employees and employers, up from the current 3%. Another increase to 4% is scheduled for April 2028. For organisations operating on tight margins, these rising labour costs need to be factored into your 2026-2027 budgets. Review your payroll settings now and ensure you're prepared for the increased contribution rates.

Minimum Wage Rates

From 1 April 2026, minimum wage rates will increase as follows:

• Adult minimum wage: $23.95 per hour (up from $23.50) – an increase of 45 cents per hour or 2%
• Training and starting-out minimum wage: $19.16 per hour (up from $18.80) – remaining at 80% of the adult minimum wage

This means an employee working 40 hours per week on the adult minimum wage will earn an extra $18 per week, or $936 per annum (before tax). Approximately 122,500 New Zealand workers currently earning below the new minimum wage rates are expected to receive pay increases.

Critical compliance points: This is a timely opportunity to audit salaried employees and ensure total remuneration doesn't fall below minimum wage once actual hours worked are taken into account. Minimum wage increases often expose broader payroll risks, so ensure your payroll systems are updated by 1 April, and consider the cumulative cost impact if you employ multiple minimum wage workers.

Health and Safety Reforms (Expected 2026)
Draft legislation for reforms to the Health and Safety at Work Act 2015 is expected in 2026. The reforms aim to make compliance easier for low-risk businesses while toughening requirements for higher-risk sectors.

There's also continued focus from WorkSafe on psychosocial hazards, including stress, fatigue, bullying, and workload pressure. Both physical and mental safety are now top priorities. Organisations should be reviewing their health and safety frameworks to ensure they're addressing these psychosocial risks alongside traditional physical hazards.

Reminder: Wage Theft is Now Criminal

While this came into force in March 2025, it bears repeating. Under the Crimes (Theft by Employer) Amendment Act 2025, intentionally withholding wages without reasonable excuse is now a criminal offence. Serious cases involving over $1,000 of unpaid wages are punishable by up to seven years' imprisonment. This provision has real teeth and underscores the importance of robust payroll compliance and accurate record-keeping. If you've discovered historical underpayments, address them proactively rather than waiting for them to be uncovered.

What This Means for Your Organisation

The scale of change coming in 2026 is significant. For many organisations, these changes will require careful navigation.

The Employment Relations Bill changes represent a fundamental shift in the balance of employment law, tilting towards employer flexibility and away from some longstanding worker protections. Whether you view this positively or with concern, the practical reality is that these changes are coming, and preparation is essential.

The Holidays Act overhaul, by contrast, is broadly welcomed as necessary simplification of an unworkably complex system. The 24-month implementation period provides breathing room, but planning needs to start now.

With a general election coming later this year, there's some uncertainty about whether all these changes will survive a potential change in government. However, it's prudent to prepare for implementation rather than hoping for repeal.
 
How Talent ID Can Support You

At Talent ID Recruitment, we're staying across these developments closely and we're here to support our clients through this period of change. Whether you need help with:

• Reviewing contractor arrangements to ensure compliance with the new gateway test
• Updating employment agreements for senior staff affected by the $200k threshold
• Ensuring your recruitment processes comply with the new privacy requirements
• Simply talking through what these changes mean for your organisation

We're committed to being more than just your recruitment partner, we're here to support you in building and maintaining a compliant, effective, and people-centered workplace.

Kellie Hamlett
Director, Talent ID Recruitment Ltd