DOES ANNUAL HOLIDAY ENTITLEMENT EXTEND PAST AN EMPLOYEE’S TERMINATION DATE?

Just a short post as there has been an influx of questions on this in the last week to NZPPA’s PayTech AdviceLine (I don’t know why). And so, I thought I would just highlight this area in a post.

In a nutshell, think of annual holiday entitlement (earned after the employee has completed 12 months of continuous employment) as money and time.  The Holidays Act after 12 months provides four weeks of entitled annual holidays (TIME), and the Act states if taken, the employer must pay the greater of average weekly earnings (AWE) or ordinary weekly pay (OWP)(MONEY). Any annual holiday accrual earned before reaching 12 months should only be seen as MONEY and under the Act is stated as 8% of gross earnings for the period it covers.  

Now when an employee leaves (terminates for whatever reason) and has some unused annual holiday entitlement, this will be extended from the termination date forward.  And if there are any public holidays in that time period, the employee will also get paid for those days.  This is because of the TIME component of the annual holiday entitlement.  The employee could have taken the time as annual holidays. They would have also received the public holidays in the period as you cannot be on an annual holiday on a public holiday (section 40 of the Holidays Act).

So, for example, if the employee has two weeks of annual holiday entitlement that will not be taken and will be paid out on termination, and their termination date was the Friday before the week of Easter (they worked Mon to Fri each week), the two weeks of annual holiday entitlement would extend through the week with Good Friday and the week of Easter Monday.  The employee would get the two weeks of annual holidays paid out and two public holidays paid at relevant daily pay (RDP) or, if the day cannot be determined, average daily pay (ADP).

If the employee is getting notice paid out (in lieu), this is not treated the same as the annual holiday entitlement being paid out. As notice paid in lieu is where the obligation for working the notice is paid out, there is no time involved.  

So, what about accrual on termination?  As stated, the above accrual is not TIME; it is only MONEY, so it does not extend forward from an employee’s termination date.  For example, if an employee’s termination date is the day before Good Friday and they had been employed for three months, accrual paid out would be based on 8% of gross earnings from the employee’s start date to the end date (the Thursday).  If you have an accrual field in your payroll system, you will usually see it stated in time, so roughly three months would be shown as a week (even though it is actually 8% under the Holidays Act Section 23).

Just a couple of other points to make: If you provide additional annual holidays like a fifth week, this won’t extend forward from the termination date (if agreed to be paid out) as it is not the same as an annual holiday entitlement provided under the Holidays Act (unless agreed).  

As I do get this question quite a lot, my final point is about whether a termination date is the day before a public holiday or the Friday before a public holiday that will happen on the following Monday, does the employee get the public holiday? The short answer is no unless entitlement is involved. The termination date is the date set it does not extend automatically just because a public holiday is next to it.

In conclusion, on termination, if the employee has an annual holiday entitlement paid out, it must be extended forward.  And if there are any public holidays, these will also be included in the termination pay (and the 8%). However, any accrual does not extend. Just watch out for the employee with ten weeks of annual holiday entitlement saved up that leaves just before Christmas!

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)

Parental leave payments to increase

Parental leave payments will increase by 6.33% from Friday, 1 July 2022, to match the rise in the average weekly earnings.

The maximum weekly rate for eligible employees and self-employed parents will increase from $621.76 to $661.12 gross per week.

Under the Parental Leave and Employment Protection Act 1987, eligible parents are entitled to payments equal to their normal pay, up to the current maximum rate. The maximum rate is adjusted annually to account for any increase in average weekly earnings.

The minimum parental leave payment rate for self-employed parents will increase this year from $200 to $212 gross per week, to reflect the minimum wage increase on 1 April this year.

The minimum rate for self-employed parents is equivalent to 10 hours worked per week at the adult minimum wage, which is now $21.20 per hour.

Reference: https://www.employment.govt.nz/about/news-and-updates/parental-leave-payments-to-increase/

COMPANY ANNIVERSARY DATES: WHY PAYROLL SHOULD NOT USE THEM

Firstly, this post has nothing to do with the common anniversary date created for employees with customary closedowns under the Holidays Act. So, please do not confuse a company anniversary date (by agreement) with a common anniversary date (by law) but still has to be agreed. They are two totally different payroll situations.

What is a company anniversary date?

If you have not heard of the term company anniversary date, it is a date set by the business on an annual basis to provide employees with all of their holiday entitlement at once, and not as the employee becomes entitled to it based on the anniversary of their start date.  Now, there is nothing in the legislation that allows a company anniversary date, so it must be seen as an agreed term.  

For example:

A company could set in the employment agreement a company anniversary date of the 1st April when employees receive their annual holiday entitlement.  This applies to all employees – even if they have only been working for three months or have been there for the whole 12 months since the last company anniversary date. 

The other reason why a company anniversary date has been used and accepted is because of leave liability.  By providing all annual leave to all employees once a year, the business can account for total leave liability.  You just need to understand this was well before the Holidays Act 2003, where the value of leave could be determined not like the present act that is based on a whole range of factors that make it near impossible for a business to define the exact leave liability for all employees.

Now, where did company anniversary dates come from? Well, in the dawn of payroll, as the dinosaurs roamed while we processed payroll without a computerised payroll system, we would enter leave balances onto cardboard cards for each employee.  As it was too hard to track individual anniversary dates from an employee’s start date, a company anniversary date was the practical way to manage leave all at once for all employees.  It was still a nightmare because we had to update handwritten cards or, if very lucky, use a typewriter (you know, the one that has a ribbon in it).  

Why is a company anniversary date still being used?

Payroll has moved on. With a computerised payroll system, we have the tools to track individual employee anniversary dates. Once they have reached 12 months of continuous employment, they can get their annual holiday entitlement across the business for all employees.

As stated previously, a company anniversary date is an agreed term. For this reason, in older employment agreements, you may come across a company anniversary date clause or old policies still being applied.  I also come across payroll practitioners who have always applied a company anniversary date as a common payroll activity in their workplace.

Issues with using company anniversary dates in today’s payroll

So, there are some real legislative issues if you are still using a company anniversary date under the Holidays Act, such as:

  1. Moving an employee’s entitlement date
  2. Taking annual holidays before entitlement
  3. Cashing up annual leave entitlement.
  1. Moving an employee’s entitlement date

There is nothing in the Holidays Act or any Act that allows an employer to move an employee’s entitlement for a company anniversary date.  The Holidays Act states under Section 16(1):

  • After the end of each completed 12 months of continuous employment, an employee is entitled to not less than four weeks’ paid annual holidays.

So, the Holidays Act was introduced on the 1st April 2004, and company anniversary dates were from a time before this, but they were kept in place after the change.  What should have been done is the company should have changed to the employee’s anniversary date along with any new employees hired. The Holidays Act was never fully implemented based on what it was meant to do with the concept of a week and how the calculations were applied. So, many payroll systems and the ways companies have applied leave linger from the past, undermining payroll.

  1. Taking annual holidays before entitlement

If an employee has not been in the workplace for 12 months of continuous employment but asks for leave and if the employer agrees, this is leave in advance of entitlement.  The calculation for this is in Section 22 of the Holidays Act and is the greater of AWE and OWP. However, because the employee has not been in the workplace for 12 months, the divisor for AWE is reduced to reflect the actual time they have been working.  

I often see annual holiday entitlement provided to an employee through a company anniversary date when the employee has not been there for 12 months. In several cases, businesses do not do the greater of AWE and OWP, and leave taken in advance is being paid at the ordinary pay rate (usually an hourly rate). This is not compliant with the Holidays Act. 

  1. Cashing up annual leave entitlement

Suppose an employee has worked 12 months of continuous employment to get their four weeks of annual holiday entitlement. In that case, they have the right to ask to have up to a maximum of one of the four weeks (of current entitlement) paid out (if the employer agrees).  With company anniversary dates, as the employee has been provided with their entitlement well before they have been in the workplace for 12 months, I have seen in some cases that they are allowed to get one week paid out.  Because they have not completed the 12 months of continuous employment, this is another non-compliant activity often resulting in leave being given back to the employee. It must not be paid out before 12 months (except for a closedown under specific circumstances or on termination).

What can be done if you have a company anniversary date?

As there are non-compliant areas to using a company anniversary date; this should be the driver to change it to bring it into line with the Holidays Act requirements.  

  • Create a business case on why the changes are needed.
  • Consult with employees, seek their consent, and create a variation to remove any company anniversary date clauses from employment agreements.
  • Reset employee anniversary dates based on the employee’s start date and convert entitlement to reflect only entitlement earned at 12 months (this may result in some employees having a negative leave balance).

In conclusion, a company anniversary date may have worked in the past. However, technology, legislation, and payroll have moved on. This old payroll activity is just not needed anymore and creates potential compliance issues. 

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)