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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:

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

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.

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.

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)

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