Understanding and managing employee leave balances this holiday season
O*NO! 2021 has been another tough year. Many of us have, at some stage, experienced financial uncertainty, mental health issues, exhaustion and social isolation as a result of Covid and the Government’s response to it. Another not-so-known side effect of snap lockdowns, reduced social freedoms, vaccination targets and travel restrictions is employees are not taking leave!
As employees across Australia have been unable to travel and reluctant to spend money due to financial uncertainty, there has been an upward trend of employees across the nation not taking leave. This has resulted in an accumulation of employee leave entitlements for employers to manage. This can put serious pressure on your business, especially if not dealt with earlier. Continue reading to learn about the leave entitlements your employees have rights to, what impact accruing leave balances can have on your business and people, and how you can effectively manage the situation.
Annual Leave
Annual leave, also known as holiday pay leave, are days/time employees can take off whilst still being paid. So, we know the basic rules – your staff are generally entitled to 4 weeks annual leave per year (pro-rated for part-time employees) unless you have been more generous in your employment contracts. The minimum standard of annual leave you must provide is governed by the National Employment Standards (NES). Other government award or enterprise agreements cannot allow you to give leave that is below the NES prescribed amount, but can give more leave.
All employees, except those that are casuals, are entitled to annual leave. Annual leave is paid at the employees’ ordinary rates (plus holiday loading if applicable) and when employees leave, we must pay them out their annual leave entitlements. An employees annual leave will accrue from day one of their employment, even if there is a probationary period. Also, annual leave doesn’t just disappear once the year has finished, it will just roll over to the following years and accrue until it is used.
Long Service Leave
After working for a long period for the same employer an employee may be entitled to long service leave. These entitlements are decided by long service laws in each state and territory. These laws set out the time period an employee must have worked to earn their long service leave, and also how much leave they will be given.
As an example, in the ACT long service leave is governed by the Long Service Leave Act 1976. Accordingly, an employee who has completed 7 years of employment with the same employer is entitled for long service leave. They will accrue this leave at a rate of 1/5 a months leave for each year of service. This starts to accrue during the 7 year period, and any years after that, but can only be used by the employee after the 7 year period.
Why you shouldn’t let leave balances get high
It is important to note that, whether it be long service leave or annual leave, if they accrue for too long then it can have serious stresses on your business.
Firstly, high leave balances on your balance sheet may adversely affect the valuation of your business impacting on the agency’s borrowing capacity. This can then hinder the expansion and growth of your agency.
Another potential financial implication is if your agency was required to lay off certain staff due to forces beyond your control (such as the current pandemic), there is an obligation to pay out those accrued leave balances upon termination. This could have a significant impact on your agency’s cash flow in the day-to-day running and operation of the business.
Thirdly, having employees regularly use their leave entitlements encourages good mental health in the workplace. Covid has hit us hard! Working non-stop in ‘normal’ times can be trying enough, but working without a decent break over the last 2 years is burning us all out. Not only do we need to look out for each other, but agency owners have a duty of care to make sure they provide a safe workplace. One way we can do that this Christmas is to make sure our staff have a decent break. Remembering agency owners need a break too!
When annual leave is used wisely, this time off can reap huge rewards both personally and professionally. In fact, 35% of Aussies say that regularly taking time out to concentrate on themselves and the things they enjoy has a huge impact on their mental health. This in turn will help productivity in your business.
How to effectively get your leave balances lower
One way of getting leave balances down is to start a conversation around what you and your staff are looking forward to over the summer and start to plan when every one of your team, including yourself, will take time off to either spend time with their families or do the things that they enjoy.
With travel restrictions appearing to ease across the nation for some, there is a strong incentive for employees to combine their annual leave with upcoming public holidays over Christmas 2021, Australia Day 2022, Easter/Anzac Day 2022. If you are unable to fully shut down over the break, try to stagger leave over the summer period so everyone can get some R&R.
For employees who are under the Real Estate Award, you can require them to take leave if you shut down over Christmas. That includes partial shutdowns where you go to skeleton staff. This is known as forced leave.
Often, Principals will “encourage” staff to take leave over the shutdown period. However, this year we should be thinking about whether mandatory leave needs to be taken – not only to reduce your liability on the balance sheet but to help staff rest, recover and recalibrate after a rough year.
Also, if you have any staff that have accrued more than eight weeks of annual leave, you need to talk to that employee about how and when that leave balance will be reduced. If you can’t reach an agreement then you can direct your employee to take leave, provided you follow the procedure set out in the Award.
Key Takeaways:
When your employees have not taken any annual leave for a while and are starting to accrue large balances, not only is it not good for their health but it puts pressure on your balance sheet
Know the rules around annual leave and long service leave, and ensure your employees are being given leave they are entitled to – otherwise, you could land in legal hot water
Manage your leave balances by encouraging your employees to take a break this holiday season so they can focus on themselves and their mental health
Beyond just helping your people, managing your leave balances will also save you future financial stresses by not impeding on your ability to borrow, not affecting the valuation of your agency, and you not having to take a big hit to your pocket by having to pay out leave that employees have accrued.
Next Steps
Not sure about your legal requirements when it comes to your employees and leave entitlements? Book a FREE 10 min chat with us today to discuss your options.
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Boring legal stuff: This article is general information only and cannot be regarded as legal, financial, or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.