What to do when employees’ annual leave accruals go into excess

When annual leave accruals reach an excessive amount, can you force employees to take leave? An expert weighs in on the issue.

Now that state and international borders are starting to reopen, employers may soon be flooded with a surge of leave requests.

Most employees won’t have taken much leave over the past 18 months, and many could be hanging onto a build-up annual leave for a long-overdue holiday.

But annual leave accruals were an issue long before COVID-19 can cause headaches for employers, and they were an issue long before COVID-19. There are a variety of reasons employees might be hoarding their leave, including but not limited to:

  • They want to take a significant amount in one block for an important life event (i.e. a wedding, birth of a grandchild or an overseas trip).
  • They’d prefer to cash in their leave. (This is only permitted under certain awards. See the Fair Work website for more details).
  • They’re reluctant to take annual leave if they feel their workload won’t be effectively managed in their absence, leading them to worry that they’ll be flooded with tasks upon their return to work.

Excess annual leave accrual can be a financial burden for businesses as untaken annual leave is recorded as a liability on balance sheets.

So what can employers do to keep annual leave balances as close to zero as possible?

Can you force employees to take leave?

Employers can generally only instruct employees to take leave if they’ve accrued an excessive amount, or if the organisation shuts down for a block of time, such as at the end of the year.

“The basic rule of thumb is that the employer can direct an employee to take leave if they accrue more than eight weeks,” says David Wurth, Principal and Founder of Wurth HR. The period is slightly longer for shift workers, who can be directed to take leave if they’ve accrued 10 weeks.

“The other time is if the company shuts down over Christmas and New Year, so long as you’ve given them warning. You need to give employees at least four weeks’ notice, and you have to do that every year.”

In the interests of preventing burnout and supporting employees’ wellbeing, many companies strongly encourage their employees to take smaller chunks of leave throughout the year.

Over the last 18 months as opportunities for travel have been virtually non-existent, organisations have needed to emphasise the importance of taking time off to recharge – even if that just means taking a staycation.

Driving this message home is particularly necessary as the phenomenon of ‘vacation shaming’ has taken off in the last few years.

When bosses and colleagues discourage an employee from taking time off – especially during the pandemic when time off meant staying home, rather than booking a holiday – employees might associate taking leave with feelings of guilt and angst.

If employees are concerned about being inundated with tasks upon their return to work, it’s important to reassure them that their workload will be managed during their absence. [Have a read of HRM’s piece on company-wide week off for some ideas on how an employee’s work can best be managed while they’re on leave].

Employers often don’t give adequate attention to this, says Wurth.

“It’s so often neglected,” he says. “If an employee has had three weeks off and they’re going back to work to face 450 emails, and no one will have done X, Y or Z, that’s going to be stressful for them,” says Wurth.

“Management needs to be proactive and think about who will do that person’s job when they’re away. You need to manage the traffic of emails while they’re away too. Some companies don’t even think about this.”

He also thinks managers should be doing more to keep abreast of their employees’ leave plans, or reiterating the importance of taking time off work if plans for taking leave aren’t currently in the works.

Putting annual leave on the agenda for team meetings is part of this process.

“Just like you should be having work, health and safety as an agenda item, leave should be on the agenda too. It can just be a quick check-in,” says Wurth.

Leaders can also set a healthy example by taking short breaks from work to signal that they’re making their own mental health a priority.

HRM has previously written about introducing progressive offerings such as ‘life leave’ for employees to use for special occasions. The option to take a day or two off to move house or spend time with a grandchild might provide added incentive for employees to take time off.

It might also deter employees from hoarding annual leave in anticipation of a significant event, since they can tap into their life leave – an additional benefit provided on top of annual leave – for these occasions instead.

However, this won’t always address the issue of annual leave accruals.

“Some employees might say, ‘I’ll leave my four weeks of leave brewing there for the next three years, and it will grow into 12 weeks. And I’ll just take a day off for other life events,” says Wurth.

Some employees might need more of a nudge.

Incentives to prevent excessive annual leave accrual

To prevent annual leave accruals from creeping higher, companies could consider incentives such as:

  • Running a program for employees to reduce their leave accruals. Those who successfully achieve the predetermined goal can be granted an additional day of leave.

    Nick van Luyt, HR Strategy Consultant at The Common Society, suggests turning the campaign into a workplace competition, with the team that comes out on top receiving an additional day off.When clients he’s worked with have introduced a competitive element into their program, employees have felt “more control of taking the leave” rather than being “bitter about being forced to take leave”, he says.

  • Using commercial relationships with suppliers to offer employees travel deals or accommodation discounts.

    “You could say that all staff who have less than four weeks accrued can take advantage of this deal that we’ve brokered with x company,” says Wurth. “This kind of left-of-field thinking can help to save the company money in the long-run, and they’ll have better-adjusted employees.”This option isn’t only available to organisations through existing commercial relationships.Van Luyt suggests companies could also partner with local travel providers to highlight upcoming deals that might encourage employees to book in for leave.

  • Making the process of applying for annual leave as easy and seamless as possible. Some employees might be put off taking annual leave if there’s copious amounts of paperwork to submit. Keep it simple and easy for your employees – taking time off should be a restful experience, and the process of getting there shouldn’t create more work for employees.

Any incentive or campaign needs to be supported with ongoing education about the benefits of taking leave.

“It’s key to wellbeing,” says Wurth. “Employers should not be encouraging their staff to bank their leave for a big holiday, but reinforcing that smaller breaks are essential to mental health.”