When it comes to managing and recording employee leave, it might be easy to take the “she'll be right” approach. But there are some really good reasons why you should diligently manage, track, and pay leave.
Proper leave management means your business can operate more effectively, you meet your employees’ need for time-off, and you satisfy your legal obligations.
A number of recent, high-profile cases of large NZ employers not staying on top of leave and holiday pay - including Ministry of Business, Innovation and Employment (the ministry responsible for policing the Holidays Act) - have highlighted just how serious non-compliance can be.
1. It's the law!
First and foremost, keeping track of leave and paying correctly keeps you on the right side of the law.
Under the Holidays Act 2003, all employers must keep accurate 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 11 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).
When leave is taken, the Holidays Act prescribes how this must be paid for each type of leave. Each type has a different calculation method for payment, so you cannot adopt a one-size-fits-all approach.
As we've seen in recent years, calculations for annual leave payments have caused quite a few headaches for Kiwi businesses. Many companies, both big and small, have been caught out underpaying employees for holidays.
Keeping accurate track of leave and holidays will eliminate or minimise 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, copping a fine from the Employment Relations Authority (ERA) or a Labour Inspector and ending up in the news.
2. The bottom line
Effective leave tracking and management can lead to a reduction in costs. Paid time-off has a significant financial impact on a company’s bottom line.
Temporary workers and contractors can cost much more than your regular staff. Or if your existing employees provide cover, you may have to pay overtime.
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 drop in customer satisfaction.
There may also be increased administration costs and management time (finding suitable replacements, bringing them up to speed, maintaining team morale etc.), and potential safety issues with replacement or overworked staff.
Another 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 has to be paid out in a lump sum.
Unpaid leave is registered in the company's books as a debt and could also cause a problem if you ever wanted to sell the business.
3. Proper leave and holiday planning
Properly planning your team members' leave means you can plan absences in advance and ensure you have adequate cover, rather than having to scramble and risk getting caught short.
While there is little you can do if a number of 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.
It will also mean there is no dent in team morale. No one wants to be regularly asked to take on extra work because the company forgot to properly plan holiday cover.
Using an efficient leave management service or software will make keeping track of leave easier and more accurate. Management will spend less time on monitoring and responding to leave requests and the system will maintain accurate company-wide records, so you can easily check leave totals and demonstrate legal compliance.
4. Employee confidence and wellbeing
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.
Your employees also want to know that the business is organised. If leave is poorly managed and a number of team members take leave at the same time, the remaining people may have to do extra work to cover. This could lead to resentment if it happens regularly, and the damage will be even greater if it turns out you haven’t been calculating your employee’s leave or holiday pay correctly.
Many good, modern leave management systems allow employees to see their leave balances and request leave electronically. This provides transparency and the automation also reduces admin for the business.
5. Reduced absenteeism
Taking leave is essential. It promotes good physical and mental health in the workplace and improves people’s work-life balance, which reduces stress and unscheduled days off.
Absenteeism can have a significant impact 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.
If you don’t have the tools to accurately track leave, especially sick leave, you may not know how many days a year your employees are taking and how much that is affecting your business.
Proper leave management systems can give you a much better understanding of leave patterns across the business, and if there are issues, you have the chance to work on solutions with your employees.