Stale Standard Hours: The Quiet Payroll Error That Gets Louder in 2028

Every payroll holds a small number against each employee: their standard hours. Thirty hours over four days. Forty hours over five. It is entered when someone starts, and in many businesses it is never looked at again.

That is where the trouble starts. In our Holidays Act remediation work, an out-of-date standard hours record is one of the recurring root causes of leave underpayments. And from August 2028, under the new Employment Leave Act 2026, that same number becomes the base that annual and sick leave are built on.

Why nobody notices

People change how they work. A part-timer picks up extra shifts and settles into a full week. A roster moves from five 8-hour days to four 10-hour days. A “casual” ends up working the same three days every week. Often nobody puts the change in writing, and nobody updates payroll.

The employee is still paid correctly for the hours on their timesheet, so the payslip looks right. The problem sits in leave, because leave is often calculated from the standard hours record rather than from what the person actually works.

Where it goes wrong today

Under the Holidays Act 2003, a stale standard hours record can flow into:

• Annual leave. Ordinary weekly pay is worked out from the old contracted hours, so each week of leave is paid short.
• Public holidays, sick leave, bereavement leave and alternative holidays. Many payrolls pay a fixed day length, such as 6 or 8 hours, rather than what the employee would actually have worked that day.
• Missed public holidays. If payroll thinks someone works three days a week when they now work five, holidays on the other two days can be missed entirely.
• Leave balances. When weeks of entitlement are converted to hours using the old figure, the balance does not match the real working week.
• Final pays. Untaken leave is valued on the same wrong basis, and the 8% on top is calculated on a base that is already too low.
• Salaried staff. If someone contracted for 40 hours regularly works far more, their real hourly rate can drop below the minimum wage without anyone seeing it.

Each shortfall also counts as gross earnings, so it feeds into the next calculation, and employer KiwiSaver is owed on the arrears too. A small setting becomes a chain of underpayments.

Why the safety net does not catch it

The Holidays Act has a backstop: annual leave is paid at the greater of ordinary weekly pay and average weekly earnings over the last 12 months. Many people assume that covers any error. It often does not.

Take an employee contracted for 30 hours at $30.00 an hour who has settled into 40 hours over the last 8 weeks. Payroll uses the old 30 hours, giving $900.00 a week. Their 12-month average, with 44 weeks at $900.00 and 8 weeks at $1,200.00, is about $946.15. Payroll pays the greater of those, $946.15. But their real ordinary week is 40 hours, or $1,200.00. They are about $253.85 short for every week of leave.

The average lags behind because most of the year sits at the old, lower level. That is exactly the situation stale hours create. (Figures are illustrative.)

What changes under the Employment Leave Act 2026

The Employment Leave Act 2026 received Royal Assent on 6 August 2026 and replaces the Holidays Act. The new rules apply from each employee’s first pay period starting on or after 6 August 2028. Until then, the Holidays Act still applies, and employers must still put right any past underpayments.

The new Act moves leave to an hours-based system, and standard hours sit at the centre of it:

• Annual leave accrues at 0.0769 of an hour for every standard hour, from day one.
• Sick leave accrues at 0.0385 of an hour for every standard hour, capped at 160 hours.
• Additional and casual hours do not accrue leave. Instead they attract a 12.5% leave compensation payment.
• Leave is used hour for hour, and one hourly leave rate applies across leave types.
• Where hours are not clearly set out, employer and employee must agree a notional roster in writing.
• Existing leave balances will be converted into hours.

Under the Holidays Act, the ordinary working week is a question of fact, so when a contract is out of date the employee’s actual working week can be used instead. Under the new Act, the standard hours record becomes the engine of the calculation. If it is wrong, the error runs through every pay:

• Leave under-accrues from the first pay period under the new rules.
• Hours get misclassified. Hours someone is actually required to work may be treated as additional hours, with a 12.5% payment instead of leave. Practitioner guidance is clear that labeling hours as additional or casual will not avoid accrual. The agreement and the real arrangement both matter.
• Conversion locks it in. Balances converted from weeks to hours on bad data carry the error into every employee’s opening position.

With a six-year look-back on claims, many employers will be dealing with both laws at once: fixing historic Holidays Act shortfalls while running the new rules. A stale record can create a problem under both.

What to do now

1. Compare every employee’s recorded standard hours and days with what they have actually worked in recent weeks.
2. Put every lasting change of hours or days in a written variation, and update payroll in the same pay run.
3. Stop paying leave at a fixed default day length where the real hours can be worked out.
4. Check anyone labelled “casual” who works a regular pattern.
5. Keep some record of the hours salaried staff actually work.
6. Fix historic underpayments before your balances are converted to hours.
7. Plan to update your employment agreements well before 2028.

How PayMasters can help

The PayMasters has been running New Zealand payrolls for over 30 years, and we carry out Holidays Act compliance reviews and remediation for New Zealand employers. We can run a standard hours health check across your payroll, identify where leave has been underpaid, and help you get your data ready for the Employment Leave Act.

Get in touch with our team to talk about a review Here!

This article is general information and is not legal advice. Guidance on the Employment Leave Act 2026 is still being released. Check the current position before acting.