Almost 20,000 current and former Auckland Council staff could have been underpaid $18 million in annual leave, sick pay and public holiday entitlements.
It follows a number of organisations across New Zealand incorrectly implementing the Holidays Act legislation, resulting in large-scale payment errors.
The Police identified a $39m underpayment affecting approximately 15,000 employees.
Auckland Council has begun contacting current and former staff about its incorrect application of the Holidays Act.
The blunder could affect 17,500 people who worked for the council since it started in 2010.
Council performance director Patricia Reade said working out what's owed and who it's owed to has been a huge undertaking.
The council will contact about 4500 current council employees to advise them of the issue and explain how pay will be rectified. Some people will be paid from next week.
Former employees will be contacted later this year.
Auckland Council director people and performance, Patricia Reade, says the council is doing all it can to ensure the issue is rectified.
The issues effect about 17,500 current and past employees who were employed by the council from 2010, including a wide range and large number of contracts.
"Working out exactly what we owed and who we owed it to was a huge and complex undertaking.
"However, we are committed to ensuring we do right by current and previous employees.
The next step in the process will be to attempt to contact former employees who are owed backdated payments," Reade said.
Following an audit in 2016, Ernst & Young (EY) was contracted to review the council's payroll system to identify where underpayments had occurred, quantify the amount of underpayments and help the council make changes to its payroll system.
This work included Auckland Council, Auckland Tourism, Events and Economic Development (Ateed), Regional Facilities Auckland, Panuku Development Auckland and Auckland Council Investments Ltd.
EY estimated liability of $18m, to be included in the council's 2016/17 Annual Report. Simpson Grierson was contracted to perform ongoing independent legal reviews of the methodology and assumptions underlying the calculations done by EY.
EY and Simpson Grierson charged $2.1m and $35,540 respectively.