Business New Zealand fears the extension to paid parental leave will make it difficult for smaller businesses to retain staff.
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Paid parental leave will be extended to 22 weeks from next July, rising to 26 weeks by 2020, the government has confirmed.
Business New Zealand chief executive Kirk Hope said the extension could present difficulties for some firms.
"Obviously the government's commitment to a longer period of paid parental leave will be welcomed by parents, or new parents.
"The challenge really for smaller businesses will be ensuring they have sufficient cover over the increased period."
Mr Hope said in other countries that had longer paid parental leave entitlements, more people tended to not return to their job after the leave was up.
"So it's really critical for small businesses in particular to be in communication with their staff who are taking paid parental leave and ensure they can get that continuity."
Prime Minister Jacinda Ardern acknowledged the extension would have an impact on businesses as they tried to replace staff.
"I have taken on board that these issues provide, particularly for our small and medium sized enterprises, some challenge, but I hope by setting out the timeline that we have they will be able to plan for that.
"I also hope that overall they'll see a likelihood that they may perhaps be more likely to see their employee return to work because they've had a decent amount of paid parental leave, or at least a more reasonable amount of paid parental leave."
Council for Trade Unions secretary Sam Huggard said there were lots of reasons to support the leave extension.
"It's a really smart measure in terms of helping parents in terms of helping establish their bond with their babies, it also recognises and values the work that primarily women are doing.
"It's just a positive move both for getting families off to a really good start, but also supporting, in particular, women to maintain connections with the paid workforce if that's what they choose to do."
The legislation enacting the changes will be on Wednesday and passed under urgency by the end of the year.
About 28,000 parents take paid parental leave each year.
