Leave liability — the dollar value of all leave (except sick leave) that is owed to any employee at any time — often catches employers off guard when employees terminate. And it’s not just the financial impact that you need to worry about. Tired, burned-out people can quickly become disengaged, and they can also make costly mistakes.
The good news is that all of this can be managed, provided you have a good leave management plan in place, as well as access to the right data and insights about your workforce.
Creating a positive culture around leave
People need to know it’s OK to use the leave they are entitled to.
A 2021 report by BusinessNZ and Southern Cross Health Insurance showed that of the 250 employers surveyed, 56% noticed that during 2020, employees took less annual leave than in the previous year. While this might be a side-effect of pandemic lockdowns, it is still significant.
It’s important to create a culture in your organisation where employees don’t have to jump through hoops when applying for leave. Having an easy-to-use self-service portal like Affinity Dashboard will help, along with positive reinforcement from leadership.
Late in 2020, recruiter Robert Half surveyed 300 hiring managers, including 100 CFOs and 100 CIOs, from companies across Australia. The results are encouraging, and show that amongst other strategies, a sizeable proportion are making an effort to encourage employees to take the leave they’re entitled to.
Personalised employee leave planning
Ensuring that each employee has a leave plan in place and having regular conversations about taking leave, will signal that the organisation is actively monitoring the situation. Managers should be transparent, explaining that the organisation cares about the wellbeing of its staff, but also needs to keep leave from accruing past a certain point due to cost.
The reasons why some employees fail to take leave can be complex. But regular communication from managers can go a long way to understanding.
Leave liability reporting
Reporting on leave liability can be notoriously tricky. Not only do you need to trust the data, you also need an easy and effective way to share it with the people who can take action.
The threshold for excessive leave is usually determined by individual businesses. A powerful combination of accurate leave history data, robust queries, and scheduled reporting can reveal where the hot spots are. Ideally, managers and other stakeholders receive a regular report listing employees who have excessive leave balances.
Understanding the financial cost of unused leave
In any business that employs staff, it’s vital that everyone understands how amassing a large amount of unused leave can impact the bottom line. We have already discussed the negative impact on employee wellbeing. Left unchecked, not taking leave can quickly lead to fatigue, mistakes, and lost productivity.
If you had to pay out all annual and long service leave to all your employees tomorrow, how much would that cost? If you’re breaking into a cold sweat at the very thought, it’s probably time to take an honest look at the quality of your leave history data, your payroll system’s data reporting capability, and exactly what data would best serve decision makers.
Not knowing the total dollar-value cost of your leave liability can seriously impact the financial wellbeing of your business. Just like employee wellbeing, it needs to be protected at all costs.
For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.
