Taking Annual Leave

If we were to talk about small business owners rarely taking annual leave, you are sure to roll your eyes as you try to remember when you last had any time off! However, it seems that it is not just business owners who aren’t taking their holidays.

The Southern Cross and Business New Zealand’s fifth Workplace Wellness Report  tells us the number of people taking annual leave is decreasing, and this isn’t new. Research in 2019 by Lee Hecht Harrison Penna highlighted a serious problem around ‘presenteeism’ in NZ workplaces. In a 2016 global study, New Zealand workers were among the most holiday deprived in the world, taking only 15 of their 20 days annual leave.

What Are Your Staff Entitled to?

Except for certain circumstances where pay-as-you-go is permissible, employees get at least four weeks of paid holidays per year, not including public holidays or sick leave. Employees can take leave whenever they want, provided you agree. They also have the right to take at least 2 weeks of their leave at once. Moreover, they can carry over leave. Unused leave isn’t lost; it’s added to the next year’s leave.

Is Unused Leave Really a Problem?

The purpose of leave is to take holidays. This ultimately reduces stress and improves the mood of everyone involved! Leave creates a healthy work-life balance and reduces illness. Health and safety concerns can arise when staff work for long periods without a break. You can often observe a decrease in productivity and creativity, and an increase in errors when adequate leave is not utilised.

It’s worth noting that it isn’t just annual leave that isn’t being used in NZ at the moment. Statistics show more than half of Kiwi workers are choosing to work from home when feeling unwell instead of accessing their sick leave. I’m sure a number of you will be rolling your eyes once more with that statistic! More on managing sick leave in another blog.

Unused annual leave also creates a problem affecting your balance sheet. Leave is a debt. The way annual leave is calculated and paid means that the debt increases as an employee’s pay increases. When an employee’s contract is terminated, for whatever reason, remember they are to be paid their unused annual leave balance at their current pay rate.

Reducing Annual Leave Balances

There are a variety of benefits to encouraging staff to take their leave entitlement. An employee’s true value (and maybe a lack of contingency planning) may only be revealed once they are away from the workplace! Additionally, more serious problems may go undetected if an employee is never absent. You can read more about preparing for absence in the workplace in our previous blog.

We hear Kiwi workers don’t want to use leave if they can’t travel overseas. However, it is not just the pandemic to blame for us not taking leave. In a recent study, more than a quarter of respondents (27 per cent) cite financial concerns as a barrier to taking leave. A further 23 per cent say their work schedules don’t permit taking more annual leave than they do. Without addressing these issues, leave may roll over for years creating an increasing financial problem for your business.

Tips for Improving Leave Management

Leave management and correcting a poor leave culture can take time. At FixHR, we recommend starting with a clear leave policy. We like to cover:

  • Your process for applying for leave. You might want to remind employees that they shouldn’t make holiday arrangements without getting approval first (this happens more often than you might think!) Shared calendars can come in very handy here.
  • Any restrictions on when leave will generally not be approved (for example times of high demand).
  • How you will manage conflicting requests. For example, if a particular employee ‘always’ has school holidays off this can lead to resentment from other employees who can’t take time off.
  • Set any limits on how much leave you’ll let employees carry over each year and let them know they’ll be made to take leave if too much builds up. If you can’t agree on taking leave, you are permitted to tell an employee when they are required take time off, provided you give at least 14 days’ notice.
  • Whether you will agree to let employees take paid leave in advance together with any rules or limitations.
  • Whether you have an annual closedown. Again, you must give employees at least 14 days’ notice beforehand.
  • If you will let your employees exchange up to a week of annual leave for cash each year. There are rules about cashing out leave so contact us if you would like more information.

Make sure you are actively monitoring leave and arranging for people to take a break. Talk to your employees to discuss their leave plans and how you will manage their absence. Consider any cover that might be required – too often employees have to work extra hours before and after their holiday to manage their workload. And make sure you keep records of all leave to avoid disputes.

Finally (dare we suggest), be seen to take a break! We know how difficult it can be for business owners to step away from their business, but time off demonstrates the importance of annual leave for everyone.

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