The smaller the team, the bigger the impact when an employee takes annual leave.

“Managing staff leave is certainly a challenge for business owners, but transparency, good communication and flexibility will help you keep things running smoothly,” says Martin Nally, Founder and Managing Director of hranywhere and a Lecturer at the University of Melbourne’s Faculty of Business and Economics.

The Fair Work Act sets out every employee’s leave entitlement, but not when leave should be taken.

“It’s very important to be upfront about the needs of your business – for example, you might require staff to take at least some of their leave at a particularly quiet time of year,” Nally continues. “At the same time, you want them to feel their needs are being taken into account, so you should do your best to accommodate their preferences for the rest of their holidays. Where possible, leave should be discussed and agreed well in advance.”

Accommodating different generations

Nally has been surveying each cohort of his postgraduate students as part of a longitudinal study of career anchors – the things people consider non-negotiable in their jobs. These were originally identified by Edgar Schein in the 1970s during his time as a professor at the MIT Sloan School of Management.

“There are eight of them ranging from security to lifestyle,” says Nally. “I found that while baby boomers tend to have an equal distribution across all them, 40 percent of Generation Y put lifestyle first. In general, younger people don’t live to work they work to live and, if business owners don’t understand this, there could be a great deal of tension when it comes to arranging leave.”

He cites an example of a young woman who wanted to spend six weeks in South America.

“She had gone to great lengths to ensure her work would be covered while she was away, but her boss refused,” says Nally. “When he told her that her only option was to resign she did so reluctantly. She sought advice and because the employer was found to have been unreasonable, he ended up paying out her leave entitlement, four weeks’ notice and another four weeks’ pay as compensation. A little more flexibility would have saved a lot of angst and expense.”

Negotiation and compromise

Staff taking too little time off can also have an impact on a small business. Research released by Roy Morgan Research in June this year shows that Australia’s full-time workforce has accrued a total 123,510,000 days of annual leave, which averages out at just under 21 days leave for each full-time worker. It showed that certain industries tend to have a higher level of annual leave accrued than others, with those employed in wholesaling accruing an average of 25 days each. This was followed by staff in public administration and defence; agriculture; and transport and storage who’ve accrued an average of 24 days leave each.

“It’s very important that employees take the time off they’re entitled to so they have a chance to relax and unwind,” says Nally. “A holiday can help to prevent burnout, and there’s evidence that regular breaks from work have a positive impact on both mental and physical health.”

Big leave balances can also be very expensive because, when it’s taken or paid out, it has to be at the current rate of pay.

“If the leave has accrued over a number of years this could add up to a significant extra cost,” says Nally. “Untaken annual leave is also recorded as a liability on your balance sheet.

“You need to encourage your team to take the leave they’re entitled to when it’s due in a way that has a minimal impact on the business. It won’t always be simple, but most issues can be resolved by being transparent about your needs and willing to consider a compromise.”

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