Holidays are good for business.
Studies have shown that when staff are refreshed with regular breaks away from work, their overall productivity increases.
But juggling which employees should take their holidays, and when they may take them, can be a headache.
Worse, some staff seem to revel in hoarding their holidays like squirrels stockpiling acorns.
When that happens, you have the further problem of huge accrued leave balances that represent an ever-increasing cost to your business.
So what can be done about employees who don’t want to take time off?
WHY ACCRUED HOLIDAYS CAN BE A PROBLEM
Before going over what you can do about employees stockpiling their holidays, it is good to get an appreciation for why this behaviour is bad for your business.
There are several consequences that arise from allowing your staff to accrue their holidays:
- It’s bad for productivity. We should be thankful that holidays are enshrined in statute as an incentive to take time off work, because it is actually good for your staff and for your business.
- It can make it more difficult for you to manage your workforce. When employees hoard their leave and take substantial breaks in a single block, rather than taking smaller, regular holidays throughout the year, the task of juggling who can take leave, and when, becomes much harder.
- It can affect your bottom line. Annual holidays are paid for at the time when they are taken. Generally, the amount they are paid is calculated by averaging the gross pay the employee received over the previous year and dividing that by 52 to get their average weekly pay. That means paying your employee for a day’s holiday this year may be cheaper than paying them for that same day if they take it next year, because any pay increase or bonus they receive in the interim will increase their average weekly pay.
Knowing it is bad for business, you have a few options for addressing high accrued holiday balances.
PAY IT OUT
Since 2011, employers have been permitted to pay out to staff up to one week per year of accrued annual holidays. The employee’s accrued balance is reduced by the same amount.
But there are conditions:
- The employee must make this request. You can’t force them to ask for their leave to be paid out or make it a term of their employment.
- You cannot pay out any more than one week per employee per year.
What happens if you pay out more than one week?
You may reduce the employee’s accrued balance of annual holidays by that extra amount, but the reduction will not be recognised by law.
In other words, if challenged, you won’t have achieved a reduced annual holidays balance for that employee after all. The employee would be entitled to have their annual leave balance restored to what it was before you made that payment.
The upshot is that when it comes time for them to leave their employment, you might end up paying them twice for those annual holidays: once when you paid it out at their request, and again on termination, because they should have been entitled to have those holidays kept on their leave balance.
This suggests that paying out leave is only useful to a limited extent. It will not help where the employee is determined to hoard their annual holidays because they will not be incentivised to make the request. And even if they do make the request, at most you can pay out one week per year.
Paying out up to a week on request may help initially, but you may need another strategy for the most persistent workaholics in your business.
TELL THEM TO TAKE A HOLIDAY
If necessary, you can direct your employees to take some or all of their accrued annual holidays (whether they want to or not).
The Holidays Act sets out a couple of conditions before you use this “nuclear option”:
- You must first try and reach an agreement with your employee about when they will take some of their accrued annual holidays. That doesn’t mean you must actually reach an agreement, because the timing of their holidays must also suit you. If the employee prefers to take them at a time that does not suit your business, or refuses to take them at all, then you have failed to reach that agreement. All you must do is try, and record any attempts at reaching an agreement in writing – by email or a note to the employee – when giving them your direction to take their holidays.
- You must give the employee at least 14 days’ advance notice. That means you can’t tell the employee to take all their holidays starting tomorrow. They get two weeks to make plans for how they will best use their break.
Can you tell your employee to take all of their accrued annual holidays on 14 days’ notice? Yes. There is nothing in the Holidays Act to prevent you from doing that. But remember that it is probably beneficial to you and your employee that they take regular breaks.
Further, telling your staff when to take their holidays may not be the best thing for your employment relationship. You may end up with a very unhappy employee (though who knows whether the break from work may improve their outlook?).
For that reason, most employers strive to agree with their staff when they will take their holidays. Or you might consider keeping this option up your sleeve only for those situations where the employee is being especially difficult, hoarding their annual holidays and refusing to agree to take them at times that are suitable for your business.
If you don’t want to look like the mean employer singling out particular employees to take leave, and if it works for your business, you could implement a closedown period.
Those are periods, usually over Christmas and New Year, when your business customarily shuts down operations. During those times you can direct your entire staff not to come into work.
Still, you must give employees at least 14 days’ notice of a closedown period. So in the lead up to the Christmas break, you need to think carefully about the timing of when you will give that notice.
The advantages of a closedown period are that it reduces the annual holidays balances for everyone, employees do not feel unfairly singled out, and you do not need to try and reach an agreement with staff before giving them notice.
Ensuring your employees take regular breaks is beneficial in terms of productivity and your bottom line.
Therefore, it pays to keep accrued annual holidays balances in check. With at least four weeks adding to those balances each year, they can accrue quickly if employees are intent on stockpiling their leave – either for a special reason or to maximise their pay-out on leaving your employment.
But you have options: paying out up to a week’s leave each year, telling your employees to take annual holidays, or implementing a closedown period. Keep those options up your sleeve to use as necessary.