Most employees are entitled to some form of leave over the course of their employment. Some leave types must be paid out on termination (like annual leave) while others aren’t (like personal and carer’s leave). Leave liabilities is a general term for the leave types that are paid out on termination, so it’s important to reduce them. Annual leave is the most common example of a leave liability, so let’s use it as our example.
What are leave liabilities?
According to Fair Work, all full- and part-time Australian employees are entitled to four weeks of paid annual leave each year, but not casuals. Most of this leave will be used throughout the year (especially over the Christmas and New Year period), but it’s common for some employees not to use the full allotment.
While in the UK annual leave entitlements are only applied to the working year (use it or lose it!), in Australia any remaining annual leave balance carries over year after year. Especially for longer serving employees, if they’re carrying over remaining leave each year, this can become a pretty big pay out if they leave the business. Multiply that by however many employees you have, and the issue of leave liabilities becomes more understandable (especially after the COVID years where few holidays were taken!).
If you’re using Employment Hero, you can run an accrued leave report to identify how big your leave liabilities are across the organisation.
How can I reduce leave liabilities?
Even if your leave liabilities aren’t too concerning right now, keep reading to ensure they don’t become a problem in future. And if your leave liabilities are getting your heart racing, we got you.
Directing employees to take annual leave
According to Fair Work, an employer can direct an employee to take annual leave but typically only in one of two scenarios: an employee has excessive leave accrued (i.e a leave liability), or the business is closed over the Christmas and New Year period. There are other variables to consider too (like what Modern Award your employees fall under), so it is important to seek legal advice before making any decisions.
If you decide to go ahead, tread carefully. Directing employees to take annual leave is rarely taken well by your team, and if you’re one of many people managers struggling to recruit new hires, now isn’t the time to be putting existing employees offside.
Not only is Christmas a while away, but some employees may want to keep working or the business may need skeleton staff. New starters without any annual leave to use won’t enjoy going into negative leave, or taking unpaid leave. And some people would prefer to work during Christmas and New Year and take time off at another point in the year.
Inspiring a culture of wellbeing
At the end of the day, employers should be encouraging their employees to use their paid annual leave entitlements whenever they need (and have) it. Not only will this show your employees that you care about their wellbeing, it will also reduce your leave liabilities before they become a problem.
There’s really nothing for employers to gain from discouraging their people from using their paid annual leave entitlements, but of course some leave requests will be less convenient than others. If it’s a busy period, it’s understandable why an annual leave request might be denied, but lead with empathy. Use your best judgement and do what a fair and reasonable employer would do in the circumstances.
Lead by example
A fish rots from the head. If you want your people to use their annual leave, it’s important they see their managers and leaders doing the same. You don’t have to send the office pictures of you drinking a coconut by the pool while they’re back in the office, but there’s no harm in announcing your plans, either via a Slack status, OOO or in your next all staff meeting.
Keep it short and sweet, but make sure to call out the importance of taking time out. Something like ‘I’ll be on leave for the next week and looking forward to spending time with the kids. I’ll be offline, but look forward to returning with a new energy’.
And while we’re on the topic, actually be offline. Burnout is real and it’s important that your employees know they can disconnect and recharge when they’re on leave too. Lead by example and show your people how it’s done. By continuing to work from leave, you’re signalling to your employees that you expect the same from them (whether you mean to or not).
Summary
Now that you know what leave liabilities are, your next steps are to pull a report on the leave liabilities of your own organisation. If those numbers make you nervous, it may be time to start encouraging your team to use their annual leave.
Start promoting employee wellbeing and encouraging—both directly and indirectly—for your employees to use their annual leave. Avoid the stress and lead by example to promote a culture of wellbeing.
Disclaimer: The information in this article is current as at 17 April 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.
