Author: David Jenkins NZPPA, CEO
This is another updated article from way back in 2017, but again, we get asked about this regularly.
There is still a lot of confusion about what a company anniversary date is and especially about whether it is a part of the Holidays Act, which it is not. Here is an updated article on this from 2022.
Firstly, this post has nothing to do with the common anniversary that can be created for employees who have a customary closedown under the Holidays Act. Please do not confuse a company anniversary date (by agreement) with a common anniversary date (by law); they are two totally different payroll activities.
What is a company anniversary date?
If you have not heard of the term before, a company anniversary date is when a date is set by the business on an annual basis to provide employees with all of the annual holiday entitlement all at once, once a year, rather than as the employee becomes entitled to it based on the anniversary of their start date. 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 a company anniversary date of 1 November in the employment agreement, and all employees would receive their annual holiday entitlement at that time. This is even if they had only been working for three months or an employee who had been there for the whole 12 months from the last company anniversary date.
The other reason a company anniversary date was used and accepted was for leave liability. By providing all annual leave to all employees once a year, the business can account for total leave liability all at once as a collective total. You just need to understand that this was well before the present Holidays Act 2003, where the value of leave is not a set figure but based on a whole range of factors that have made it nearly 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. For ease of management, 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 cardboard cards or, if very lucky, use a typewriter (you know, the one with a ribbon).
Why is a company anniversary date still being used?
Payroll has moved on, and we have the tools provided by using a computerised payroll system 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, and for this reason, you may encounter a company anniversary date clause or old policies still in place in older employment agreements. I also encounter payroll practitioners who have always applied a company anniversary date as an everyday payroll activity for their business.
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 and employee entitlement date
- Taking annual holidays before entitled
- Cashing up annual leave entitlement
1. Moving an employee entitlement date
Nothing in the Holidays Act or any act allows an employer to move an employee’s entitlement for a company anniversary date. The Holidays Act states the following:
- Section 16 (1) After completing 12 months of continuous employment, an employee is entitled to not less than 4 weeks paid annual holidays.
So, the Holidays Act was implemented on 1 April 2004, and company anniversary dates were from a time before this but were kept in place after the change. What should have been done is the company should have changed the employee’s anniversary date along with any new employees that had been 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 to be applied, so many payroll systems and how businesses applied leave have lingered in the past, undermining payroll.
2. Taking annual holidays before entitled
If an employee has not been in the workplace for 12 months of continuous employment but asks for leave (if the employer agrees) this is leave in advance of entitlement. The calculation for this is Section 22 of the Holidays Act, and it is a greater of AWE and OWP, but 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 in the workplace.
I have seen annual holiday entitlement provided to an employee through a company anniversary date when the employee has not been there for 12 months in some cases. In these cases, they are not doing the greater of AWE and OWP, and leave taken in advance is being paid at the ordinary rate of pay (usually hourly rate). So, they are totally non-compliant with the Holidays Act.
3. Cashing up annual leave entitlement
If an employee has worked 12 months of continuous employment to get their 4 weeks of annual holiday entitlement, 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). I have seen with company anniversary dates that the employee has been provided with their entitlement well before they have been in the workplace for 12 months, and in some cases, they are allowed to get one week paid out. As they have not completed the 12 months of continuous employment, this is another non-compliant activity that can result in leave being returned to the employee as it must not be paid out before 12 months (except for a closedown under specific circumstances or on termination otherwise).
What can be done if you have a company anniversary date?
As there are non-compliant areas regarding using a company anniversary date, this should be the catalyst for changing it to align with the Holidays Act requirements.
- Create a business case on why the changes are needed
- Consult with employees, seek agreement, and create a variation to an agreement to remove any company anniversary dates clause from their employment agreement.
- Reset employee anniversary dates based on the employee’s start date and covert 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 worked in the past, but technology, legislation and payroll have moved on, and this old payroll activity just is not needed and if used creates issues with compliance and adds an extra level of payroll activity