Managing high annual leave entitlement

1. Impacts of high annual leave entitlement
2. What would be considered high annual leave entitlement?
3. Can you compel employees to take annual leave?
4. Issues with compelling annual leave
5. Cashing up annual leave
6. How can high annual leave entitlement be managed?
7. How can I request support from MyHR?

1. Impacts of high annual leave entitlement

Employees with lots of annual leave owing to them creates a financial liability to the business as should their employment end for any reason, they would be entitled to have this leave paid out.

Furthermore, employees who have high annual leave balances are not likely to have taken sufficient breaks for rest and recouperation, which is the purpose of annual leave being a legislative entitlement.

Therefore, keeping on top of employees' leave balances is beneficial both for the business and for your employees' health.

Please be aware that annual leave has no “use it or lose it” provision. If employees don’t use annual leave, it remains an entitlement under their employment.

2. What would be considered high annual leave entitlement?

Employees are entitled to 4 weeks of annual leave per year, therefore an annual leave balance of 4 weeks is a reasonable assessment of a normal amount of leave entitlement. Anything over and above this could be considered a 'high' balance.

Note the difference between annual leave entitlement and annual leave accrual:

• Annual leave entitlement is leave that employees are legally entitled to take. They become entitled to 4 weeks of annual leave after 12 months of continuous employment and every 12 months thereafter.
• Annual leave accrual is leave that employees accrue throughout the 12 months of employment, but are not entitled to take until their leave anniversary. Some organisations allow employees to take annual leave accrual in advance of entitlement, but you cannot compel an employee to take accrued leave.
  
  

3. Can you compel employees to take annual leave?

Yes, ultimately you do have the option to compel an employee to use annual leave entitlement, provided that you give them 14 days notice in writing.

However we recommend that you make reasonable attempts to discuss with the employee in the first instance, as this meets your good faith obligations to attempt to come to a mutual agreement and provides a better framework for the ongoing relationship.

4. Issues with compelling annual leave

If an employee turns up for work on the days you have compelled them to take leave, this could be considered grounds for disciplinary action on the basis that they are failing to comply with a reasonable instruction.

5. Cashing up annual leave

Employees may request to cash up some annual leave in order to avoid needing to take leave. Accepting a request to cash up annual leave is at the employer's discretion. If you wish to accept such a request, you must ensure this is within legislative limits. Employees may only cash up 1 week of their 4 weeks of annual leave entitlement each year.

Note, employees are permitted to cash up a maximum of 1 week of annual leave per entitlement in any calendar year. This means that even if an employee has accrued multiple years of entitlement, they may still only cash out up to 1 week.

6. How can high annual leave entitlement be managed?

MyHR's recommended approach:

Step 1 - Informal discussion

• Firstly, we recommend meeting with each employee to discuss their annual leave balance and understand if there is any reason that they haven't used it.
• For example, they may be saving leave to take time off for a trip. If they aren't saving the leave for a specific purpose, you can discuss options for them to use some leave.
• The most obvious suggestion for an employee with high annual leave is to take a decent period of leave (or two) to use it up in a lump.
• If an employee is resistant to taking a chunk of leave all at once, you could suggest alternatives such as working a shorter week for a while and taking long weekends, e.g. working a 4 day week and taking the 5th day as annual leave.
• Employees will likely need some time to consider how they would like to take their annual leave, so give them some time to think about it and come up with a plan. A week is a reasonable timeframe to provide at a minimum.

Step 2 - Confirmation

• If you have reached an agreement with your employee on when they will take annual leave, great. Get them to apply for leave and approve it. 

Step 3 - Formal approach

• If an employee does not provide the requested plan within the timeframe provided, then you can take a more formal approach and issue them with a letter that instructs them to provide you with a plan to reduce their leave balance by a certain date.
• We can support you to prepare this letter. To request this, please go to HR Services > Compel to take annual leave. Fill out the form and advise the specific dates that you would like the compel the employee to take.

Step 4 - Letter to compel leave

• If the employee still fails to engage with making a plan to take leave, at this stage you have the option to compel them to take some leave during a set time period.
• To compel an employee to use annual leave entitlement, you must give them at least 14 days notice in writing.
• We can support you to prepare this letter. To request this, please go to HR Services > Compel to take annual leave > fill out the form provided and advise on the specific dates that you would like the compel the employee to take > Submit.
• We can support you to prepare this letter. To request this, please go to HR Services > Compel to take annual leave. Fill out the form and advise the specific dates that you would like the compel the employee to take.

How can I request support from MyHR?

Raise a ‘Compel to take annual leave’ request under HR Services and provide full information as to what you require.

Have further questions?

Contact our Advisory Team to discuss further 0800 69 47 69.