THE RISKS PAYROLL FACES FROM THE EMPLOYMENT LEAVE ACT 2026

Author: David Jenkins, NZPPA CEO

A constructive review identifying implementation risks and practical safeguards

The Employment Leave Act 2026 is intended to make leave simpler and clearer. For payroll, however, simpler rules will not automatically make the change safe or straightforward.

The Act is now law, with the main leave rules due to apply from 6 August 2028. Until then, the Holidays Act 2003 continues to govern leave. This leaves a limited period in which employers, payroll teams and software providers must understand the new rules while continuing to administer the existing ones.

NZPPA welcomes the Government’s early implementation material and its commitment to further technical guidance. At the same time, we consider that significant risks remain. The central concern is not resistance to reform; it is whether the guidance, systems and responsibilities will be clear and fully tested early enough to protect employees and employers on the date the new system starts.

In this article, I want to highlight the risks that must be addressed if the new Employment Leave Act is to deliver the best possible outcome for payroll. I genuinely want the new Act to succeed. After more than 20 years of payroll difficulties under the Holidays Act, we finally have an opportunity to create legislation that payroll can apply accurately, consistently and with confidence. However, experience has taught me to be cautious.

Over the years, I have been part of numerous government working groups where significant improvements were promised, but little has changed for the payroll practitioners dealing with the problems every payday. For that reason, I will keep asking difficult questions and challenge the implementation process until there is clear evidence that the new Act will work in practice. I sincerely hope my concerns are proven wrong. Payroll practitioners have heard promises of change before; this time, we need those promises to result in workable legislation, detailed technical guidance and payroll systems that enable every employee to receive the correct leave entitlement and payment, accurately and on time.

These risks are real

The new Act replaces a familiar, although deeply problematic, framework with a very different way of managing leave. Payroll will need to classify hours as standard, additional or casual; accrue annual and sick leave in hours; apply leave compensation payments to qualifying hours; manage notional rosters; treat multiple roles correctly; calculate leave using new statutory rules; preserve privacy; and produce compliant pay statements and records. Each of these changes affects employment agreements, rostering, time and attendance, HR master data, payroll configuration and employee communication.

This is not simply a software upgrade. It is a business-wide change to the information used to calculate and manage leave. A technically correct payroll calculation can still be wrong if the employment agreement does not accurately describe standard hours, the roster is out of date, an allowance is misclassified, a second role has been combined incorrectly, or converted balances are based on incorrect Holidays Act data.

1. Detailed guidance is needed before systems are designed

MBIE and Employment New Zealand have published useful introductory material and have stated that detailed technical guidance will follow. That is welcome. However, payroll cannot build and properly test new statutory calculations using high-level summaries alone. Payroll needs detailed guidance that clearly sets out the required information, the calculation rules, rounding, when changes take effect, unusual situations, worked examples, expected results and reconciliation requirements.

The timing matters. Providers and large employers need to decide early in the two-year period how their systems will be structured and what data they will hold. If official guidance arrives after systems have already been designed, organisations may have to redesign, retest and repeat data conversions at considerable cost. Guidance issued late may be published before commencement but still arrive too late to be useful.

Employment New Zealand has released a timeline for guidance and resources on the new Employment Leave Act, which is a positive and welcome step. However, the real test will be whether sufficient expertise and resources are committed to delivering against that timetable. Previous reform processes were affected by repeated delays and, at times, an inadequate understanding of payroll’s operational and technical complexity. It is important that this is not repeated. Any guidance must also clearly distinguish between binding statutory requirements and recommended good practice. Payroll teams cannot safely configure systems or establish compliant processes based on guidance that is too general, subject to change, or open to multiple interpretations. Unfortunately, this has been a recurring issue with some previous guidance from Employment New Zealand. Just one final point about guidance, any guidance provided by MBIE must be open and transparent to all, not hidden for only a selected group to access, especially with any guidance provided to payroll providers.

2. Employer liability and the lack of accountability for payroll software providers

The statutory obligation to provide minimum leave, make correct payments and keep compliant records rests with the employer. Using commercial payroll software does not remove that responsibility. If a provider’s standard software calculations, conversion tools or default settings cause errors across payroll, employees will generally look to the employer for correction, and the regulator will enforce employment standards against the employer.

That allocation is understandable because the employer controls employment arrangements and source data. But it becomes inequitable where a provider controls calculation rules built into the software that the employer cannot reasonably inspect or validate. A small or medium-sized employer may have neither access to those calculation rules, nor the technical expertise required to prove that it implements the Act correctly. Telling employers to check whether their provider is ready does not give them the means to assess whether the provider is right.

NZPPA recommends direct statutory responsibilities for payroll software providers regarding claims that the software is compliant, the accuracy of built-in calculations, control over software changes, testing records and timely correction of known defects. This should not displace employer responsibility for agreements, data and payroll operation. It should place responsibility where control actually sits. At a minimum, providers should be required to disclose assumptions, document how calculations work, retain test evidence, notify customers promptly of significant faults and support remediation caused by errors in the provider’s software.

3. Two years is not necessarily two usable years

A 24-month implementation period sounds substantial, but the time actually available to complete the work is much shorter. Time is consumed by confirming how the law should work, designing and developing software, changing system connections, customer consultation, collective bargaining, correcting payroll data, testing, trial balance conversions, training, employee communication and changeover. Payroll providers must support many customers with different agreements and workforce patterns at the same time.

The Act cannot be applied early. The Holidays Act remains operative until commencement, while the new rules must be ready to apply from the relevant commencement point. The change must happen on a set date rather than being introduced gradually. Large employers will need several full trial runs and may need the ability to test both calculation methods. Smaller employers may be dependent on a provider release schedule over which they have little influence.

Implementation time should therefore be measured from the date on which the complete technical guidance, regulations and an agreed set of test calculations are available—not merely from Royal assent. If essential material is delayed, the Government should be prepared to take a reasonable approach to enforcement or provide a protected transition rather than shifting the consequences of that delay to employers and payroll teams.

4. Employment agreements and rosters become payroll inputs

Under the new framework, employment agreements and working arrangements become even more important to payroll configuration. Standard hours drive accrual; additional and casual hours may attract a leave compensation payment; notional rosters may be required where working arrangements are not fully stated; and multiple roles may require separate treatment. Ambiguous agreements will become ambiguous payroll instructions.

The risk is greatest where actual work has evolved, but the written agreement has not. Payroll may receive a roster but do not know whether it reflects agreed standard hours, temporary variation, availability or additional work. Payroll should not have to reconstruct the legal bargain after the pay period has closed. Employers need a clear process for approving working patterns and sending changes to payroll that clearly state when they take effect before they affect pay and leave.

The extra period allowed for some employment-agreement updates may reduce immediate legal pressure, but it can increase payroll complexity. Where an agreement and the Act produce different outcomes, applying the more favorable provision can require two sets of rules and employee-specific comparisons. Deferring agreement work is therefore not a neutral choice; it can move cost and risk directly into payroll.

5. Data conversion can preserve—or amplify—historical error

Converting balances from the Holidays Act framework into the new hours-based system is one of the highest risk activities. The process requires more than changing a unit label. Employers must establish that existing entitlements, units, anniversary information, work patterns and pay histories are accurate before conversion. Where they are not, the new opening balance may make an existing error look correct.

Data quality problems are common: inconsistent use of days and hours, missing work-pattern history, unrecorded contractual enhancements, negative balances, manual adjustments without reason, merged balances for multiple roles, and unresolved remediation. Conversion rules must explain how each situation is treated, what assumptions are permitted and what audit evidence must be retained.

NZPPA considers that MBIE should publish standard ways to convert balances, worked examples and reconciliation templates. Employers should be able to prove the path from the closing Holidays Act position to the opening Employment Leave Act position for each employee. The conversion process must not remove historical liabilities or hide continuing remediation obligations.

6. Running both systems and changing over creates a major risk

The system must continue to be calculated under the Holidays Act until the new regime applies, while the organisation builds and tests the replacement. The changeover may interact with pay periods that begin before commencement and end afterwards, adjustments relating to earlier pay periods, back pay, terminations, leave requested before commencement but taken afterwards, and corrections to pre-commencement pay. Clear rules stating which law applies and from what date are essential.

Problems during the changeover could affect every employee in the same pay cycle. Errors may include duplicate accruals, missing accruals, incorrect LCP, loss of balance history, wrong leave rates, incorrect payslip disclosures or an inability to reverse and reprocess. Employers need plans to reverse the change if it fails, as well as reconciliations and checks after the new system starts, and not just a provider assurance that an upgrade has been installed.

Government should publish changeover scenarios and expected results early enough for providers and employers to incorporate them into testing. A formal implementation test pack should include ordinary and complex cases, tests of situations where the system should reject or prevent an action, mid-period changes, multiple roles, notional rosters, public holidays, ACC interactions, terminations and retrospective corrections.

7. Software defaults can conceal legal decisions

The new Act may be simpler, but simplicity in the formula does not remove the need to decide what information to enter. A default label such as “overtime”, “casual” or “standard” can determine whether leave accrues or LCP is paid. A default leave rate may be wrong if pay components have not been set up correctly. An automated notional roster may be convenient but non-compliant if it does not reflect the agreed working arrangement.

Employers must not assume that a vendor’s default is the legal answer for their workforce. Providers, in turn, should not market software as “compliant” without clearly stating the configuration decisions the employer must make. Every important default setting should be visible, documented, and reviewable. Payroll managers should demand written records of system settings and the reasons for them, rather than relying on undocumented implementation settings.

8. Payroll people need the knowledge and time to make the change

Payroll practitioners will need to understand both regimes during the transition. They will be expected to answer employee questions, test system outcomes, recognise incorrect classifications, reconcile converted balances and question results produced by the software. Training cannot be limited to a summary of legislative changes or delivered only shortly before the date the new system starts.

NZPPA has already released its initial introductory webinars on the new Act and will, over the coming months, release more in-depth technical training courses for payroll, HR, managers and people who manage payroll systems. Our training will include payroll-specific training on the new calculations, data requirements, exceptions, audit trails, and troubleshooting. Employers must also give payroll teams enough time and resources for the change: normal payroll deadlines do not pause while teams correct payroll data and test the new legal requirements.

9. Inconsistent interpretation will become inconsistent pay

If MBIE, legal representatives, human resource and payroll professionals, employers and software providers reach different conclusions, those differences will be coded into payroll. Once built into payroll systems, a disputed interpretation can affect thousands of transactions and become expensive to reverse. The Holidays Act experience shows the danger of allowing different practices across the payroll industry to become established before clear official guidance is settled.

NZPPA recommends a standing MBIE payroll implementation advisory group with representatives from payroll practice, employers, employees, software providers, legal specialists and assurance professionals. It should maintain a public issues register, publish resolved interpretations and publish dated versions of guidance and test cases. Answers given privately to one party should not create hidden rules unavailable to the wider industry.

10. Enforcement must recognise the practical challenges of the change

Employees must retain meaningful remedies and employers should not receive immunity for neglect. However, immediate penalties for genuine mistakes made while implementing the new rules would be unreasonable where employers have followed published guidance, used validated software, tested their systems and corrected errors promptly.

NZPPA recommends a protected transition period for defined implementation errors. Eligibility should depend on clear records of how the change was managed, timely preparation, reliance on current official guidance, reasonable testing, prompt disclosure and full correction. It should not protect deliberate underpayment, failure to prepare or repeated inaction. This approach would preserve employee entitlements while encouraging early identification and open and prompt correction of errors.

11. The cost will extend well beyond a payroll upgrade

Employers face costs for software development or replacement, interfaces, correcting payroll data, legal review, agreement variation, bargaining, testing, assurance, training, communication and additional payroll staffing. LCP may also affect cash flow, and costs may be incurred to correct historical data before conversion. Smaller employers may face proportionally greater costs because they have less internal capability and bargaining power with providers.

Government impact assessments should be revisited as more detail about the change becomes available. MBIE should provide free technical resources, templates, and test tools to prevent every employer and provider from having to develop the same material separately. Funding or targeted support should be considered for small employers and community organisations with limited access to payroll compliance expertise.

NZPPA’s recommended actions for a safe transition

Publish a dated, version-controlled programme for regulations, technical guidance and implementation resources.
Issue detailed payroll guidance with definitions, decision trees, rounding rules, effective dating, edge cases and fully worked calculations.
Release a standard set of test calculations, with agreed results, that software providers and employers can use.
Create a formal process for checking or certifying payroll software, supported by independent testing and clear information about what the checking or certification does not cover.
Impose direct statutory duties on providers for provider-controlled calculations, claims of compliance, defect notification, audit evidence and correction support.
Establish a standing MBIE payroll implementation advisory group and a public list of technical questions and agreed answers.
Publish standard balance-conversion methods, reconciliation templates and requirements for showing how balances were converted.
Provide detailed changeover rules for pay periods covering dates before and after commencement, adjustments for earlier pay periods, leave bookings, terminations and pre-commencement corrections.
Introduce a conditional protected transition for good-faith errors, without reducing employee entitlement or protecting neglect.
A comprehensive training plan is needed for HR teams, managers, employers and employees—employees must not be overlooked in this process. NZPPA has already begun developing and delivering introductory training to help payroll practitioners understand the new Act. As the legislation and supporting guidance become clearer, we will progressively release more detailed technical courses covering all aspects of the Act and its practical application to payroll.
Review implementation readiness at set review dates and be prepared to modify enforcement or timing if essential guidance, regulations or system requirements are late.

Conclusion

The Employment Leave Act offers an opportunity to replace a difficult framework with rules that allow payroll to apply more consistently. That opportunity will be realised only if implementation is managed as a major business, legal and payroll change rather than a routine software update.

NZPPA supports a collaborative approach but believes collaboration must produce clear, practical results: timely technical guidance, validated test cases, conversion standards, provider accountability, workforce training, and a fair approach to enforcement. Success is not whether systems switch on by 6 August 2028. It is whether employees are paid correctly from the first affected pay period and employers can demonstrate why every result is right.