Use it or lose it? How to handle accrual carryover
Holiday or vacation entitlement legislation varies from country to country. Sometimes even from state to state. If you’re in the UK, for example, then you have to comply with the Working Time Regulations. This means you must give full-time employees at least 28 days of paid holiday leave per year. Or, for casual workers, you can use the rule of 12.07%.
Now, some employers only give employees the legal minimum. Other employers are a lot more generous. But whichever side of the fence you’re on, it’s important you make your holiday or vacation policy clear, so that employees understand their entitlements.
You also need to consider how much leave entitlement employees will be able to carry over to the next working year.
The challenge of accrual carryover
You already know that it’s bad for business if employees are ‘banking’ their holiday entitlement. When employees carry this ‘banked’ leave over into the next year, the problem is compounded.
- Employees taking large blocks of leave can interrupt workflows
- Working for too long without a break can impact productivity and creativity
- Regular vacation or holiday time can reduce sick days
In many locations, employers are not obliged to let employees carry leave over. Which means some companies have a ‘use it or lose it’ policy. However, some employers do allow carryover. And I decided to speak to several HR professionals from all over the world, to learn more about how they manage this challenge.
Setting a time-limited overlap period
To prevent employees racking up massive banks of holiday leave, some companies have a time-limited overlap period, to help employees transition into the new year. During this time, employees can use their holiday entitlement from the previous year.
“We don’t enforce a strict ‘use it or lose it’ policy” says Steve Pritchard, HR Manager at UK-based insurance comparison service Cuuver. “If employees fail to use all their days by December, they accrue them for three months into the new year; it doesn’t matter how many days they didn’t use, just as long as they use them up by the end of March the following year.”
Advice given by ACAS states that in the UK, employees may be entitled to carry leave over to the next year, usually at the employer’s discretion. However, employment law in some countries and states can make this a difficult benefit to provide.
Setting a limit on how much total leave can be carried over
Jennifer Gunter, Vice President of HR Florida State Council’s executive committee, says that managing carryover effectively is all about limiting how much total vacation leave can be carried into the next year.
“A new hire would receive 20 days for the year if they were hired in January” she explains. “If they do not use the allotted days throughout the year, they would be able to carry forward 40 hours into the next year. We also offer employees the chance to purchase up to 40 hours (5 days) additional PTO for the year, and have a buy-back period at the end of the year, in case employees do not utilise the PTO Purchase days.”
Jennifer’s approach is quite common amongst employers all over the world. But Jennifer is quick to mention that it doesn’t work in all countries or States – for example, California.
You may need to cap how much leave employees can actually accrue
In California, the law is different. According to Fenton & Keller, it is not a legal requirement for employers to provide paid vacation. However, once an employee has accrued paid vacation leave, by law they cannot lose it. In other words, if you are an employer in California, you cannot simply reset an employee’s accrued leave once the year ends. ‘Use it or lose it’ policies are, essentially, illegal.
So how can HR professionals in California prevent employees from stacking up mountains of accrued holiday leave, without breaching State law?
Fenton & Keller says that the answer is capping how much they can accrue in the first place. In other words, if they hit a certain level of accrued vacation days, they simply stop accruing it. This way, employers know that even if an employee isn’t taking leave, they can never carry over more than X amount into the next holiday year.
Encourage your employees to take frequent breaks throughout the year
It’s important to set a vacation or holiday accrual policy that employees understand, and which helps you to manage how much entitlement can be carried over into the following year. However, beyond your policy, you should be taking extra measures to encourage employees to take their full holiday allowance throughout the year.
We published several tips to help you do this on our blog a while ago, such as:
- Be happy when employees book time off
- Ensure your leave booking system is well organised
- Don’t overload anybody’s workflows
Setting maximum accrual rules in People®
In a recent release for our HR system, we actually implemented a measure to help you better limit how holiday and vacation leave is accrued and capped. You may now set accrual limits based on three rules:
- Accruals: Enter a maximum value that an employee may accrue, regardless of entitlement
- Maximum entitlement: Cap maximum accruals based on an employee’s leave entitlement
- Remaining balance: Pause accruals if their remaining balance is too high – resume accruals if they use some of their balance
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