How can employers manage the annual leave crisis?

The disruptive effects of the COVID-19 pandemic have been felt in nearly all quarters of contemporary life, but perhaps none more so than in travel.

For much of 2020 and 2021, public health stay-at-home orders restricted the movements of millions of Australians to within their local government area or a set kilometre radius from home.

Annual trips to the snow, long weekends camping, beach holidays and interstate city breaks all fell victim to the pandemic. As a result, “people have been stockpiling leave”, says Michael Byrnes, workplace relations lawyer and a partner at Sydney law firm Swaab. “They’ve not been inclined to take annual leave because they’ve been working from home, and there’s nowhere to go.”

At the same time, COVID-19 restrictions, including closed borders and self-isolation requirements for close contacts, have left many workplaces short staffed. Coupled with an increase in the volume of work experienced during the pandemic, some employers have needed all available staff on deck, leaving them unable to grant leave requests.

Accounting firms and public practitioners have faced similar challenges when struggling to keep on top of the large workload amid all the upheavals experienced by small businesses in particular.

Excessive amounts of accrued leave pose a problem for both employers and employees.

Employers “end up with large annual leave accruals on their books, which presents a financial problem”, says Byrnes.

Dr Robyn Johns, a senior lecturer in human resource management and industrial relations at the University of Technology Sydney, adds, “If people are allowed to accumulate a huge amount of leave, and they’ve had pay increases during that time, it’s a higher cost to the business to pay it out because they pay it out at the current rate.”

Tools for managing leave accrual

For employees, the restorative benefits of taking leave are even more critical than usual during a pandemic.

According to the ELMO Employee Sentiment Index for Q3 2021, 42 per cent of surveyed employees have reported feeling “burnt out”, up from 34 per cent in Q1. However, the number of workers taking annual leave has dropped for the second consecutive quarter to 24 per cent, down from 37 per cent in Q1.

“Employees have not had the benefit of being able to take leave and be refreshed, rested and restored in order to do their work,” says Byrnes.

Byrnes says employers have two main legal tools at their disposal to address the issue of annual leave accrual.

 

"Say, 'here are the KPIs, but also let's talk about when you're going to have some time to get away and have a break'. Make that part of the conversation, rather than it being a sideline that people are trying to fit in and always feeling they don't have time for it."

 

The first is to direct staff to take annual leave. “If the employee is covered by a modern award or an enterprise agreement, there are rules that are set out regarding a direction to take annual leave,” he says.

According to the Fair Work Ombudsman, “an employer can only direct an employee to take annual leave in some situations”, such as during a Christmas and New Year shutdown or when an employee has accumulated excess annual leave – usually considered eight weeks for full-time staff.

In instances where an employee is not covered by a modern award or an enterprise agreement, “the direction to take annual leave must be reasonable. That can include where an employee has accumulated excess annual leave,” Byrnes explains.

The second option is to cash out leave. Again, modern awards and enterprise agreements set out rules governing this action. Generally speaking, an employee must have at least four weeks’ leave remaining after the cash-out, the agreement must be in writing, and the employer must not apply duress to the employee, Byrnes says. “The annual leave is paid out at the rate at which the employee would have been paid if they’d taken the leave. There are similar requirements if you’re dealing with an employer who is award- or agreement-free.”

Leave for wellbeing

Of course, when restrictions ease and travel resumes, employers could face a barrage of leave requests. “That can create a headache for businesses,” says Byrnes. Given that “an employer can’t unreasonably refuse an employee’s request to take annual leave”, employers may have to “demonstrate operational reasons why all the employees who have requested to take annual leave aren’t able to do so at the same time”.

Given its importance for staff mental and physical health and wellbeing, organisations should cultivate a culture that promotes taking time off. Some employers have offered employees incentives to take leave, such as paying time and a half or offering extra time away from work. Westpac NZ, for example, recently announced an additional five days of wellbeing leave for its workforce on top of the extra day of COVID-19 leave already available to staff.

Johns recommends taking a proactive approach to leave planning. Integrate discussions around annual leave into the formal performance management process. Use an annual review as an opportunity to discuss not only an employee’s tasks and goals for the next 12 months, but also where annual leave fits into their workflow schedule.

“Say, ‘Here are the KPIs, but also let’s talk about when you’re going to have some time to get away and have a break’,” suggests Johns. “Make that part of the conversation, rather than it being a sideline that people are trying to fit in and always feeling they don’t have time for it.”