In small businesses, it’s easy to let leave balances slide. After all, it’s much nicer having your team at work, doing what you pay them to do, than paying them to take a holiday, especially when you, the owner, can’t find time to get away yourself! (I feel your pain)
But here’s the catch: unused leave isn’t just a scheduling headache. It’s a financial liability, a burnout risk, and a legal exposure that quietly builds up in the background.
The Skinny Favour You’re Doing Yourself
Did you know I lived in Spain for 12 years? And there’s a Spanish phrase that’s very relevant to this challenge: flaco favor. It literally means a skinny favour. It’s the kind of help that feels useful in the moment but creates a bigger problem down the track. Avoiding leave conversations is one of those. It’s kicking the can down the road, and eventually, that can turns into a cost you can’t ignore.
When staff don’t take their leave, it might feel like a win. There are more hands on deck, and there’s less disruption, and it’s somehow flattering that people choose to work rather than go on leave. But what’s really happening is a slow build-up of risk. You’re accumulating a debt, both financial and relational, that will need to be paid out one way or another.
The Hidden Costs of Unused Leave
Let’s break down this unpleasant reality:
- Financial Liability: Annual leave accrues as a cost on your books. If someone resigns or you need to make them redundant, you need to pay out every cent of their unused leave. For long-serving staff, this can be thousands of dollars, a hit many small businesses aren’t prepared for. (My best self puts this money aside for staff as I go, but it’s a challenge to not tap on that holiday fund.)
- Burnout and Performance Decline: People need rest. When staff skip holidays, they don’t just get tired, they lose perspective, creativity, and resilience. Productivity drops, mistakes creep in, and morale suffers. You might not notice it right away, but over time, it erodes your team’s effectiveness.
- Legal Exposure: Under New Zealand law, employees become entitled to four weeks of paid annual leave after 12 months of continuous employment. While there’s no legal requirement to force staff to take leave, employers must provide the opportunity and keep accurate records of leave balances and usage. If leave is allowed to build up unchecked, it can create compliance risks under the current Holidays Act, especially if staff leave or request large chunks of time off. Proactive leave management isn’t just good practice; it’s part of your legal responsibility.
The Other Side of the Leave Problem
There’s another side to the leave issue that small business owners know all too well. Let’s call it The Scramble. We hear about this from our clients often, but happily there is something you can do about it:
You’re told a staff member has booked a holiday, not asked. You’re left trying to cover their role with no notice, no plan, and no capacity. It’s frustrating, disruptive, and feels unfair to you as well as staff left behind. And while you want to support your team’s need for rest, it’s hard to do that well when you’re constantly reacting.
This is where a clear, well-communicated leave policy becomes your best friend. A good leave policy doesn’t just protect your business, it gives you breathing room. It sets expectations around how leave is requested, how much notice is needed, and how decisions are made. It helps you plan ahead, prepare for absences, and avoid the annoying last-minute panic that leaves everyone stretched.
And it’s not about being rigid or controlling. It’s about being fair to your team and to yourself. When leave is managed well, everyone benefits. Staff feel confident booking time off, and you feel confident knowing the business won’t grind to a halt while they’re away.
FixHR’s Practical Steps for Managing Leave Well
You don’t need fancy software or a big HR team to get this right. Here’s what we recommend:
1. Track Leave Monthly
Don’t wait until the end of the year. Review leave balances regularly and flag anyone who hasn’t taken time off in the past six months. A simple calendar reminder and spreadsheet or payroll report are enough to get this rolling.
2. Build Leave into Your Rhythm
Encourage staff to plan leave after busy seasons or before key projects. Make it part of your team’s natural cycle, not a last-minute scramble. This also allows you to build in periods during which leave is difficult to grant. Get ahead of that, speak openly about it, and encourage people to work around those dates or periods.
3. Lead by Example
Even if you can’t take a full break, show that rest matters. Take a long weekend. Switch off your phone. Let your team see that stepping away is normal and healthy. It’s taken us a few years to get there, but I am practicing this at FixHR now and it’s a really nice progression.
4. Create a Leave Culture
Talk about leave positively. Frame it as a way to recharge, not a disruption. Celebrate when people come back refreshed and normalise planning ahead.
5. Set Clear Expectations with a Leave Policy
Have a written leave policy that outlines:
- How leave should be requested
- Minimum notice periods
- How decisions are made (especially during peak times)
- What happens if leave isn’t taken
This gives everyone clarity and helps you avoid awkward conversations or reactive decisions.
6. Use Gentle Accountability
If someone keeps deferring leave, you should definitely have a quiet conversation with them. Ask what’s holding them back. Sometimes it’s workload, sometimes it’s guilt. Either way, you can help.
A Final Thought
Leave isn’t a luxury. It’s part of the deal when someone comes to work for you. And managing it well is one of the quiet ways small businesses stay healthy, sustainable, and fair.
If you’re unsure how to start, FixHR can help. We work with small teams to build simple, workable leave systems that protect your business and support your people. No jargon, no overwhelm, just practical support that fits your size and style. Give us a call.
