Leave liability – are you exposed? Here’s your sunscreen

Summer is coming. 

Borders are opening. 

We can smell mango in the air and 2022 is just around the corner. 

We are all cautiously hoping the new year will be a vast improvement on 2021. Most importantly, will it give us the freedom to plan (dare I say it?) a holiday?    

Whatever your holiday plans are, what are your employees’ holiday plans?  For those of us who aren’t keen on knowing employees’ private lives, their holiday plans have to be the exception. Why? Let me put it in ‘bottom line’ terms – their annual leave balance affects your bottom line.

Do you know what your annual leave liability is? It shouldn’t be a surprise to realise there are consistently higher leave balances now than normal.

Apart from the operational impact of employees taking 6 or 7 weeks leave to catch up, there is also the risk of significant lump sum payments on resignation. Hello cash flow black hole!

With the rumours of ‘The Great Resignation’ can you afford to pay out even a small percentage of entitlements in a matter of months? 

There is chatter in the HR circles that employees will resign, take a few months off to reassess (living on the accrued leave) and then pursue their dream job or business. Accountant and business advisor Tracey Newman (check out our chat) from Bean Ninjas reports she has seen a jump in people starting work-from-home businesses, particularly, on-line businesses. 

It’s no shock that people are desperate to visit family and friends and/or get away.  Where people may have only visited family for a week, they can now plan a driving holiday of 3-4 weeks or even months.  The 30-year high for caravan sales is a clear indication camping grounds will be booked out. 

Let’s face it, we all need a holiday!  Purely from a mental wellness and productivity standpoint, everyone (yes including business owners) should be planning for some quality time to switch off.

If leave planning for the next 6-12 months for you and your employees hasn’t entered your mind, do it NOW!!    

So, what’s the solution?

1.   Know your leave liability figures

Like any good accountant would say ‘what do you numbers say?’

Knowing what your leave liability is over the next 3-6 months, for both long service and annual leave is vital.  Also make sure you calculate the dollar value, not just the leave balances.  You can’t make business decisions on hours; it needs to be bottom line numbers. 

2.  Have a policy

It may seem like a no-brainer (or maybe not) but having a comprehensive leave policy makes sure there are no surprises, for you or your employees.  Although leave entitlements are legislated, the mechanics around leave aren’t.  For example:

• How much notice is required to apply for leave
• Operationally-required leave ‘black out’ times (e.g. end of year for accountants)
• How the business will handle excessive leave balances
• What will happen if leave isn’t approved.

Having these scenarios outlined in a policy is vital to being consistent and transparent.  It also helps to reduce the surprises for everyone.

3.  Planning well in advance

We have business plans, production plans, operational plans and sometimes, training plans.  But do you incorporate leave planning? It should be a proactive conversation with your staff at the beginning of a planning cycle – when are you planning to take leave?’. 

Or it could be when looking at those excessive leave balances, approaching that staff member to look at them taking a break.  Hint, don’t approach the conversation like this ‘Your leave balance is too high, you need to take leave’.  That is just not effective. 

If someone has excessive leave, most likely, they will deserve/need a break.  Approach with that goal in mind.  Remember, even with a staff of 13, you are faced with 52 weeks per year of annual leave liability.

4.  Managing workload

I find there are generally 3 approaches around workload when it comes to taking leave. 

1. Take leave, enjoy the break and come back with a well-managed workload and amount of emails.
2. Take leave, enjoy the break and come back to 3 times the amount of work they left.  Regretting taking leave.
3. Take leave, knowing that the above will happen and takes laptop and does work while on leave.

I do realise it’s an occupational hazard that the latter two are what I see most of (I tend to be called in to work with businesses with headaches).  However, it doesn’t take a rocket scientist to recognise that we need to do better and aim for the first outcome. 

Planning and knowing when team members will be off, providing a backup while they are off and communicating with staff and customers, so everyone knows what is happening.   Even having a standard out-of-office email response or handing over mobiles while on leave.  I have heard of a business where the standard out-of-office is

‘Thank you for your email and <name> is currently taking a well-deserved break until <date>.  Because we want them to come back refreshed, your email has been deleted.  But, you are important as well so if you need assistance before <name> comes back, please contact……’ 

What a message that sends both to your customers and employees and in a tight labour market this could help.

5.  Out-of-the-box solutions

So what about those employees who don’t want to take leave and have a huge leave balance?  You are legally able to manage excessive leave balances but to make sure the approach is not detrimental to your culture, here are some simple, but out-of-the-box suggestions:

• Have a 4-day week with 1 day being leave
• 1 week a month for 6 months
• Pay the leave out (but this doesn’t solve the reason for leave allowances or helps cash flow).

Time to take action

Regardless of what your operational requirements are, the number of staff you employ or current leave liability, if you don’t have a plan around how to manage leave proactively, you could be facing a leave crisis which you won’t be able to leave behind. See what I did there 😜