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Businesses are sleepwalking into post-Covid financial liability

Steve Arnold, CEO -

For any business in the UK with one thousand employees or more, it’s required that they submit a quarterly assessment of their holiday liability. That is to say, how much holiday they owe to employees over that period of time.

Take Jane Smith, for example. Jane has 28 days holiday per year, which equals seven per quarter. Her employer is liable to provide those seven days. However, in one particular quarter, Jane only takes 4 days off. This means that her employer ‘owes’ her 3 days’ worth of holiday pay. This isn’t a figure that will actually be paid into Jane’s account – as long as she takes her 28 days over the holiday year – but rather an indication of liability faced by the company.

Equally, John Smith may have taken 10 days to Jane’s 4. He would be said to ‘owe’ the company 3 days. Or rather, the company can deduct 3 days’ worth of John’s pay from its liability calculations.

Once the entire workforce’s holiday balance has been totted up, a business can see the cash figure of its liability. The higher it is, the more dangerous a company’s position. No-one (from the board, to investors, to employees) likes to see higher levels of liability, especially at this time. Unfortunately, it is the very situation businesses find themselves in now which is causing a liability headache.

Covid curveball

With all the disruption cause by Covid-19, this is something probably way down a business’s list of priorities. Immediate financial concerns have been regarding contracts, paying rent, and paying employees. However, an issue has been building which is going to significantly increase liability for large companies across the country. People aren’t taking holiday.

This isn’t a new occurrence. A recent CIPD report noted that 86% of respondents had observed presenteeism in the workplace over the last 12 months. Businesses are increasingly aware of the risks of burnout. But now, employees won’t just be short a few days on their allocation – some will have taken almost no holiday at all since lockdown began.

When you can’t travel abroad, when gigs and festivals have been cancelled, when sporting fixtures have met a similar fate and when big family celebrations have been curtailed, there are far fewer reasons for employees to be booking time off. After all, most people quite rightly want their longer holidays to be memorable, not spent on the sofa at home.

This equates to a very large amount of owed money by their employers. And don’t forget, if an employee were to choose to leave, this money would have to be added to their departing pay cheque.

Avoiding the holiday rush

It can be difficult for employers to make the case to take holiday anyway, but it’s something teams will have to do to ensure their business minimizes its risk levels during these troubled times. Management need to feel comfortable to encourage teams, as It will ultimately help the health of the business and the individual.

Otherwise, businesses will not just be in the sticky situation of holding a lot of holiday liability. They will also have to figure out how to manage a sudden influx of holiday requests as and when travel restrictions are lifted. You can’t afford to have your whole team off at the same time, but this could easily become a political issue. Lots of staff, for example, will have had to juggle childcare alongside full time work, and will be in need of a break! This is all part of what I see at the ‘Holiday Debt’ conundrum – another piece of the puzzle in assessing the current and future cost of Covid-19.

Assess and engage

So, what can businesses do? The answer looks to be a gradual, managed reduction in their liability, while ensuring that their employee engagement doesn’t fall by the wayside. Two key points are to ‘assess’ and ‘engage’

Assess liability, or rather, simply understand how much holiday is building up. HR teams should regularly encourage employees to take short breaks while the country prepares for a new holiday season. It’s not just useful for ensuring staffing levels are workable, it also helps people themselves avoid burnout.

Engage with employees. Use HR data to identify patterns of behavior by individuals who may not be taking suitable periods to relax and unwind. Engage with these individuals to ensure that they are receiving all the help they need.

Managing untaken leave is a common occurrence for management. However, when put into a financial liability perspective, the importance of ensuring regular time off for all employees is huge. Holiday liability to a business is just the tip of an iceberg of problems, that can impact employee wellbeing, burnout, and staffing levels. With the coronavirus pandemic exacerbating this situation, employers need to act now to protect their staff and their business.

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