Use Up That Annual Leave!

Use Up That Annual Leave!

With Christmas approaching and most businesses taking the time to have a well-deserved break over this period, the topic of annual leave and the management of this is a very relevant one right now.  When it comes to managing and recording employee leave, it’s easy to take the “it will be alright” approach. But there are some especially good reasons why you should thoroughly manage, track, and pay leave. So, are you going to “Use Up That Annual Leave!”?

Proper leave management means your business can operate more effectively, you meet your employees’ requirement for time-off, and you satisfy your legal obligations.

Under the Holidays Act 2003, all New Zealand employers must keep proper records of the daily hours every employee works and the pay for those hours, as well as the leave accrued, entitled leave, and leave taken.

The law exists to ensure that all employees get the paid leave they are legally entitled to:

  • Annual Leave (at least 4 weeks a year after each 12 months of employment);
  • Public Holidays (up to 12 holidays each year, if they are days they would normally work);
  • Sick Leave and bereavement leave (typically after 6 months of employment);
  • Parental Leave (a mix of paid and unpaid leave depending on eligibility);
  • Family Violence Leave (up to 10 days’ paid leave after 6 months of employment).

Keeping accurate track of leave and holidays will eliminate or reduce errors in leave entitlement and payment calculations. Your employees will get the right amount of leave and pay, and your business will avoid having to pay backdated leave, or worse, receiving a fine from the Employment Relations Authority (ERA) or a Labour Inspector and ending up in the media.

Effective leave tracking and management can lead to a reduction in costs. Paid time-off has a substantial financial impact on a company’s bottom line.

There are other indirect costs and effects, including a potential drop in the quality of goods or services due to under-staffing, fatigue, or less-skilled replacement workers, which could lead to a decline in customer satisfaction.

There may also be increased administration costs and management time (finding the right replacements, bringing them up to speed, maintaining team morale etc.), and possible safety issues with replacement or overworked staff.

Another major financial implication of failing to properly manage leave is allowing employees to accrue weeks or years of leave, which is a liability to the company if the employee resigns and needs to be paid out in a lump sum. Another factor to consider is if your business fails and staff members have accrued a lot of leave – they may miss out on receiving some of this accrued leave. This is a very good reason why it is of utmost importance to encourage employees to take regular leave.

If they feel that they won’t be able to use as much leave as required – employees have an option to cash out one week of their four weeks minimum entitlement to annual holidays per year for each entitlement year. They can do this all at once, or can make multiple requests to cash-up until the entire one week is cashed up.

Unpaid leave is registered in the company’s books as a debt and could also cause issues if you ever wanted to sell the business.

Properly planning your team members’ leave means you can plan absences in advance and ensure you have acceptable cover, rather than having to scramble and risk getting caught short.

While there is little you can do if several employees fall sick at the same time, planning annual leave and holiday cover will help reduce work disruptions, ensuring there is no drop in productivity and that the business can continue to meet its obligations and deadlines.

If your team members know they are getting their proper leave entitlements, they will have more confidence and trust in the business. This means happier, more engaged people who are motivated to be productive and help the business succeed.

Taking leave is essential. It promotes great physical and mental health in the workplace and really improves people’s work-life balance, which reduces stress and unscheduled days off. Absenteeism can have a significant effect on any business. The 2017 Wellness in the Workplace Survey found that in 2016, New Zealand companies lost 6.6 million working days to absence at a cost of $1.51 billion.

To summarise the above, it is essential for businesses to ensure that employees take their annual leave regularly as it: reduces business interruption, decreases your balance sheet liability – there won’t be huge sums to pay out if your employees leave; and it’s much better for the overall health and wellbeing of your employees.

If any of the above points raise questions and you require some advice, please reach out to one of our team for assistance.

Our ‘Use Up That Annual Leave!’ not enough?

The better you understand your business and your financials, the easier it will be to make more money and ultimately achieve your goals.   We have developed comprehensive resources to enable business owners to fully understand and interpret their numbers.  Need more help? Join our free webinars on financial awareness coaching or talk to us about personalised financial awareness coaching.  Contact Samantha for a call, zoom or meet on 06 871 0793.



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