Managing employee leave balances is an important part of running a business.
In Australia, employees accrue annual leave based on their ordinary hours of work, typically at the rate of four weeks per year for full-time employees.
However, when an employee accumulates a large amount of annual leave, it can become a concern for both the business and the individual.
Why Excessive Leave Accruals Matter
Large accrued leave balances can create financial and operational challenges, including:
- Financial Liability – Annual leave is paid at the employee’s current wage rate, which may increase over time, adding to the cost burden for businesses.
- Workplace Productivity – Employees who do not take regular breaks may experience burnout, reduced engagement, and lower productivity.
- Operational Disruptions – If multiple employees need to take extended leave at once, it can impact workflow and service delivery.
Steps to Manage Large Accrued Leave Balances
1. Review Your Leave Policies
Ensure your business has a clear and fair leave policy in place that encourages employees to take leave regularly. Many businesses set expectations around when and how leave should be taken.
2. Discuss Leave Plans with the Employee
Open communication is key. Have a conversation with the employee about their leave balance and encourage them to take time off. Employees may be unaware of the impact of large accruals and may appreciate a reminder.
3. Encourage Leave Before It Becomes a Problem
Rather than waiting until leave accruals become excessive, encourage employees to schedule regular breaks throughout the year. Consider implementing a ‘use it or plan it’ approach where employees are required to schedule a portion of their leave annually.
4. Direct Employees to Take Leave (If Necessary)
Under the Fair Work Act, employers can direct employees to take leave if they have accrued excessive annual leave, as long as it is reasonable. Generally, ‘excessive’ is considered to be more than eight weeks (or 10 weeks for shift workers). The employer must provide reasonable notice and consider the employee’s needs and personal circumstances.
5. Offer Incentives or Leave Cash-Out Options
Some awards and agreements allow employees to cash out a portion of their annual leave, usually with a written agreement. This can help reduce financial liability while providing employees with a flexible option.
6. Plan for Business Continuity
When scheduling leave, ensure that your business can continue operating smoothly. Cross-training employees and planning ahead can help prevent disruptions when key staff members take leave.
7. Implement a Leave Management Strategy
To prevent excessive leave accruals in the future, consider proactive measures:
- Encourage regular leave planning: Employees should be reminded to schedule annual leave each year.
- Set internal leave policies: Some businesses set a guideline that employees should take at least two weeks off each year.
- Monitor leave balances: Keeping track of accrued leave helps prevent excessive buildup.
8. Consider Business Needs
Excessive leave balances can pose financial risks, as untaken leave is a liability on the balance sheet. If an employee leaves with a large amount of accrued leave, they must be paid out, which could be costly. Managing leave proactively helps avoid these risks.
Encouraging a culture where taking leave is normal and supported ensures a healthier, happier, and more productive workforce while keeping financial liabilities in check.
If you’re unsure about your legal obligations, consulting an employment lawyer or HR specialist can provide tailored advice for your business.
