Contact Us

It’s nearly the holiday season and this brings annual leave into the spotlight. As we approach a month filled with public holidays, we should encourage our staff to utilise their annual leave and not only rely on those public holidays.

The minimum annual leave entitlement or ‘statutory annual leave’ and other annual leave granted by the company, not regulated by statute, should both be considered.

It is important that all management, directors and line management have a clear understanding of the impact of leave balances on both the profitability of the company as well as the wellbeing of the staff.

It is of benefit to any organisation, big or small, when staff take their annual leave when it is due and avoid carrying this over to a later period. Accrued annual leave is reflected as a debt on the company books and this has a direct influence on the profitability of the company for the period. The provision for an annual leave account is a liability account, a liability that will need to be paid.

The terms of leave being taken may differ from organisation to organisation but many businesses require their employees to utilise their leave within an 18-month period or face the option of forfeiting their leave.

The recent economic Covid-19 woes that many companies have faced may have influenced how employees have considered their options when it comes to annual leave. Here are some of the reasons that may encourage an employee to accumulate leave instead of taking when it is due:

  • The possibility of getting a better pay-out if facing retrenchment or on resignation.
  • Wanting to appear indispensable in the face of possible downsizing.

For companies the consequence of not managing employees leave has a detrimental impact on several fronts:

  • Staff become less productive as they are tired when not taking the rest that they deserve.
  • Leave may have to be paid out at a more expensive rate than what it was accrued at, owing to promotions or annual increases.
  • There could be a severe impact on company cash flow if accrued leave needs to be paid out.
  • At the financial year-end, the leave provision is offset against profit, meaning that the companies results will reflect a poorer performance than was actually the case.

To avoid the negative impact of large leave accruals, it is important that the leave process is monitored and managed. A possible solution is to ensure that the leave liability is one of the criteria for management performance reviews. Considering the commercial impact, leave liability cannot be the sole responsibility of the Human Resources department and Operational Management must be held responsible and accountable.

Management must not pressure employees to avoid taking leave as “we will not cope”, but rather seek alternative solutions. For many industries, December and January are quiet and the ideal opportunity to reduce the leave liabilities, giving staff the opportunity to re-charge and to face the new year with fresh legs!

If you would like to discuss your companies leave and get a better understanding of best practices and how to manage leave from a legislative perspective, contact us for a consult by emailing or call us on +27 31 502 1743 or +27 10 446 0176.