Post-pandemic work: What to do about your employees’ large leave balances
Annual leave and long-service leave provisions create a liability, and for small to medium-sized business, that liability can be challenging.
Lockdowns tend to put a dampener on a holiday.
When the farthest you can travel is the backyard or around the block, taking leave seems almost a waste.
But that means millions of Australians have accrued tens of millions of hours that would otherwise be spent on a beach somewhere and instead are loading up the leave liability balance sheet.
To put this challenge in context, Melbourne’s world-leading lockdown has included around 215 working days, or 43 working weeks.
An employee working full-time throughout will have accrued about 16 days of leave over this period, and may have been reluctant to take that time off.
Sydney’s most recent 107-day lockdown included 75 working days, with workers accruing about a week of leave.
But even before this latest round of lockdowns, the leave ledger was bloated. Roy Morgan estimates that in March 2021, there were already 175 million untaken leave days, with half of all workers with at least two weeks due and 20% with five weeks or more.
When asked why they hoard leave, about half say they are saving it up to use later, but a similar percentage say they are too busy to go away or have too much to do at work.
For employers, accrued leave spells trouble
Firstly, annual leave and long-service leave provisions create a liability, and the leave must be paid out if and when an employee finishes up with the business.
For small to medium-sized business that liability can be challenging, and impact cashflow if one or more employees resigns with a large balance that must be paid out in cash.
A second issue is the impact on the business of employees who do not take leave, and risk becoming burnt out or less productive.
While an employee working from the couch might not feel like taking a ‘holiday’ from their job, the ability to wind down, tune out and not think about work has real benefits even if they can’t travel.
And the third risk to business is that lockdowns lift — and when they do, everyone wants that holiday they have been putting off.
This means pressure from multiple employees to take a break, just as businesses are getting back up and running. It can mean client work can’t be fulfilled or customers underserviced, or it could even mean extra pressure on the remaining personnel as they cover for absent colleagues.
What can employers do?
Navigating the rules in this area is best done in consultation with an employment lawyer but some general advice can be provided.
If your employees are engaged under most modern awards, you might be able to direct them to take some excess leave, which is generally considered to be eight weeks or more of accrued annual leave for most workers or 10 weeks or more for shift workers.
You might also be able to ask them to take leave if there’s another reasonable cause, such as shutting down a business over Christmas.
In this case, provided the employee is covered by an award or agreement that includes this approach, an employer can ask the employee to a portion of their leave but they should be fair in their request — providing suitable notice and taking into account the employee’s requests for timing.
Remember that it is vital to double check the fine print in agreements before making any of these requests.
If there are no options to require the employee to take leave, there may be an opportunity to have them ‘cash out’ their leave instead. This applies to employees not on an award or registered agreement, but is also allowed under some awards and agreements as well.
In all cases, they must:
- Retain four weeks of annual leave
- Have a signed, written agreement on each occasion that outlines the amount of leave being cashed out, amount paid and date it will be paid
- Receive a cashed-out leave payment that is the same as what they would have received if they took leave in the ordinary way.
Again, seeking advice is important before taking this step — and the employee can’t feel pressured to cash out leave if they would rather not.
Of course, the bigger challenge for employers right now is likely to be too many requests for leave rather than too few.
How should businesses manage when travel resumes?
Fair Work Australia is clear that “the employer must not unreasonably refuse an employee’s request to take annual leave”, although any leave arrangement should be an agreement between the employee and the employer.
There’s no minimum time — annual leave can be as short as a single day — or it can be taken in flexible blocks if the two parties agree.
As a general rule, employers should try to accommodate leave requests unless there’s a reasonable business reason why they cannot.
In the situation where losing most of your team at once could put operations at risk, that might mean working collaboratively to try to coordinate different requests rather than having them all land at once.
Implementing policies and processes so employees provide notice of leave is also another way to plan, so you can mitigate any resourcing issues.
It is better to map out who will take leave when, for example, than discover days before the school holidays that everyone wants the same two weeks off in July.
Should employers allow extended leave?
Another challenge for employers will be the resumption of overseas travel, with all the uncertainty that remains around potential quarantining on return.
It goes to the heart of why many people don’t take holidays in the first place: the fear that they are too busy to take extended leave or that no one will cover for them if they can’t physically be at work.
To take away this fear, and to allow people to spread their wings once more, employers can introduce some flexibility here.
It might be reasonable in some circumstances to allow employees to work remotely during any imposed quarantine period, even if they are otherwise back in the office, rather than demand they take an extra two weeks of leave twiddling their thumbs in a hotel or at home.
The past 18 months have shown that all the fears that remote work would be impractical or unproductive are overblown — so reintroducing remote work after travel makes sense.
How can employers avoid getting caught in disputes over annual leave?
Every day, employees and employers end up arguing over conditions of work, despite most being spelled out under awards, agreements or in contractual detail.
Not only are these disputes time-consuming and disruptive to morale, but with the tight labour market, they can undermine your staff retention efforts.
The best advice is to be as transparent as possible about what the business needs, and what you will do to work with employees to accommodate their needs as well.
You might not be able manage every holiday request, but by consulting with employees and being as flexible as you can, you can avoid getting left over leave.
