One HR challenge that most organisations face is an excess of annual leave liability. This article will help you understand how accrued leave can become a financial liability, how to manage it proactively, two examples of Aussie organisations that effectively managed their leave and best practice tips for dealing with excess leave.

Understanding leave liability

According to the National Employment Standards (NES), Australia’s minimum leave entitlements include 20 days of paid annual leave per year of employment. In addition to this, employees are also given 10 days of personal/carer’s leave, community service leave and long service entitlements. This can make it difficult for managers to keep track of as there are various awards involved across a single organisation.

So when does leave become a financial liability? As soon as an employee decides to leave an organisation. Not only is their leave balance paid out, but it’s paid at the current rate and not at the rate when the leave was accrued. This causes two problems – untaken leave is recorded on the balance sheet as a liability and it poses a cash flow risk if companies find themselves owing a huge sum to departing employees.

How to manage leave proactively

Managing employee leave is about understanding the balance between allowing employees to take leave on their own terms and ensuring smooth operations when they’re away.

Visualising leave balances across the organisation helps executives to easily access leave balances and to identify which departments have the most number of leave days. Having this information visible to the employee and managers will also create a soft reminder for booking time off.

Other ways managers can stay proactive:

• Send out emails over a 6 month period prompting employees to act. This should be more of an encouragement rather than a demand. Tip: You can automate this with the right software.
• Prepare a tailored annual leave plan with each employee. This ensures that your team is taking regular breaks and you have a plan outlining which employee will cover the leave. This is a clear win-win, not only for employee mental health benefits, but it will maintain productivity and reduce leave liability.

Leave liability report examples

Below are two examples of Australian organisations that use Navigo’s leave liability reporting charts to improve leave management:

The leave balance chart below is popular among our Org Planning customers, as it allows the entire organisation to check their own leave balance, especially during the holiday season. It also highlights all excessive leave in the organisation.

Since everyone tends to put in their Christmas leave around the same time, employees want to know how many days they can take off. It makes planning very easy for line managers and employees as they have all the information they need in a visual format. This chart can be accessed by all employees, but any sensitive information will only be visible to their respective line managers.

The org.manager leave management chart below highlights the liability level of leave in different colours. You don’t need a data scientist or excel expert to interpret the data, making it much easier for organisations to get a high level understanding of leave metrics rather than going through lines of text.

In the chart on the left, boxes are ordered from most to least leave. The sunburst chart on the right gives a clear overall picture of leave liability by department. Here’s a breakdown of what each colour in the chart represents:

• Bright red: Negative Leave
• Blue: 0-2 Weeks Leave
• Orange: 2-4 Weeks Leave
• Pink: 4-8 Weeks Leave
• Yellow: 8+ Weeks Leave

Action plan for excess leave

Before we give any tips for managing excessive leave days, make sure you have checked the following items:

• Inform all staff, full-time and otherwise, about the different leave options available and ensure that the company’s leave policy is easily accessible at all times. These details should not only be included in the employment contract but should also be explained during their onboarding.
• Update payslips regularly to reflect accrued leave.
• Advise staff about any changes to the leave policy, after its signed off by the relevant personnel.
• Ensure the leave requests are also managed by HR (in addition to the line manager) as they have in-depth knowledge of different types of leave entitlements and can advise the line manager to approve or decline the request if required.
  

How to tackle leave liability

It’s clear that things will never be the same post COVID. Since a lot of employees didn’t take much time over that period (which led to more leave being accrued), managers need to stay on top of holiday policies as the cost of leave liability far outweighs the benefits.

As mentioned earlier, a tailored annual leave plan can help to alleviate some issues related to leave liability. This works best if you clearly define your expectations and create a strategy that suits both parties.

Here’s some other suggestions for encouraging your employees to take a well-deserved break and for removing any stigma related to leave:

• Rethink the definition of a holiday
  Working from home has blurred the lines between work and personal time. While holidays don’t look the same as they did in 2019, it’s important to encourage your employees to self-care and spend time with your loved ones. Maybe share some ideas on how they can spend their leave in a covid safe way e.g. healthy activities like bike riding or maybe they have been meaning to finish a book or learn to play an instrument.

• Have management set the tone
  It’s important to promote a positive attitude towards taking leave and have management lead by example. By taking regular holidays, you would encourage your staff to do the same and normalise taking time off.

• Design flexible work arrangements
  Don’t be a clock watcher. Give your employees enough freedom to manage their own projects and, as long as they’re delivered on time, don’t focus on the hours they’ve worked. This flexible working option not only gives them control over their work, but also makes them feel trusted. This empowers your staff to take leave without the fear of being seen as lazy.

• Plan ahead so your team is covered
  Employees often worry about taking long breaks since work would continue to pile up while they’re away. The best way to reduce this stress is to work with employees to find a good solution. Create a plan to assign ongoing tasks to other team members. Delegate tasks to at least two or three employees to ensure the workload is evenly distributed. This will ensure that everything is on track and your employee will be more comfortable knowing their work is left in capable hands.

Don’t forget to ease your employees into work once they’re back, you don’t want them to regret taking leave. Give them time to catch up with their existing tasks before handing them any new ones. So, make sure you play your part in encouraging your staff to take a break this year!

Need help creating a leave reporting chart to improve leave management in your organisation? Request a demo with our friendly team for a free strategy session.