No leave, No life!

Australian businesses are carrying billions of dollars’ worth of annual leave liability and millions of days of untaken annual leave. What does this say about the Australian modern workplace?

Paid annual leave is supposed to give people the freedom to enjoy regular rest and respite from work without financial hassles. This should be great for businesses because employees don’t get burnt out and great for employees because they can have a healthy work life balance. As is often the case things do not always turn out as one might expect.

Australia’s paid annual leave system is unique in that untaken annual leave is accrued indefinitely and paid on termination or when leave is eventually taken. Leave is always paid at the employees most recent salary (not the salary applicable at the time the leave was accrued) and it is often paid with an additional 17% annual leave loading (bonus). As a result many employees in Australia equate their annual leave account as a savings account which they can access at some point in the future, particularly when they are changing jobs.

Australia’s preference for banking annual leave has the following unintended consequences:

1. Employees end up burnt out
2. Businesses end up with large leave liabilities in their balance sheets which is money that could be invested in growing the business or paying down other debts
3. Employees view changing jobs as a means to access their accrued leave which leads to higher employee turnover
4. Taking all four weeks annual leave per year is subtly discouraged In many workplaces

In other jurisdictions, like the United Kingdom, things are very different. In the UK annual leave is provided on a “use it or lose it” basis (i.e. annual leave is not accrued from year to year). This policy relieves businesses from the balance sheet liabilities and encourages a positive attitude towards taking annual leave. People who have worked in the UK know that in July and August is a quiet time of the year as most employees take time out to enjoy what little summer weather is available. From personal experience working in the UK I think there is a much more healthy and positive attitude towards taking four weeks annual leave each year.

Here in Australia employers can better manage annual leave with well considered annual leave policies and procedures that work within Australia’s employment law to promote the taking of regular leave and the minimisation of annual leave banking. Call us if this is something you would like to explore for your business.