Why would a company force all staff to take all their leave?

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floydbloke

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#268428 19-Mar-2020 12:59

Medium sized NZ company, about 100 staff here and a handful off-shore is asking all staff to take all their annual leave.

I'm curious as to why they might do this.

All I can think off is that they want to reduce their liabilities to make the balance sheet look better. Maybe to put it up for sale or to borrow from the bank?

Can anyone offer any other rationale?

(It doesn't help cashflow. Could it be they're in financial trouble and they'll have to pay out less if they need to lay off staff? They're far from directly impacted by the pandemic fall-out, their income is from regular subscriptions and last I heard they were looking to move premises because they were growing.)

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

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#2441221 19-Mar-2020 13:18

Keep them alive?

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Mark

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#2441224 19-Mar-2020 13:23

Unused leave is "money" owed to people, accountant types get all jittery about it being owed ... we get nagged to take leave if we go past 20 days leave built up.

frankv

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#2441228 19-Mar-2020 13:32

Mark:

Unused leave is "money" owed to people, accountant types get all jittery about it being owed ... we get nagged to take leave if we go past 20 days leave built up.

Yeah, but this scenario is different. He is saying that *everyone* has to take *all* their leave *now*. It sounds like the company is going into a shutdown, presumably due to Covid-19. If people take their leave now, they'll be sitting at home for 2-6 weeks doing nothing and at the end of the Covid-19 crisis the company won't owe any leave. If don't take their leave, they'll perhaps be sitting at home (or at the office) for 2-6 weeks doing nothing (depending on the industry the company is in), and then want to go on paid leave. The alternative might be to make people take leave without pay. Or lay them off completely.

timbosan

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#2441229 19-Mar-2020 13:34

Mark:

Unused leave is "money" owed to people, accountant types get all jittery about it being owed ... we get nagged to take leave if we go past 20 days leave built up.

This - it's called Leave Liability - basically the amount a company would have to pay out in annual leave if everyone left that day. If it gets high, then than can be an issue.

Most companies work to manage this, also on the flip side people should be taking leave to rest and recover and enjoy life, not try and accrue as much leave as possible.

OldGeek

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#2441231 19-Mar-2020 13:48

There are several parts to this picture: increased cost, future liability, leave-taker loading. The first two are accounting issues, the third is ensuring that those on leave are covered at any one time by those who are not.

Increased costs occur if the time lapse between leave entitlement and when it is taken is a long time. For example a week that was earned in 2012 and taken in 2019. Looking at such a week, the cost of it is accrued at salary level starting in 2012 but the actual cost is at salary level in 2019. Future liability therefore increases as leave is entitled to but not taken. For companies with large numbers of employees or with highly-paid but fewer in number of employees, the total liability may be large enough to be a balance sheet item.

Problems can arise if cut-off dates are used to force those with large entitlements to take leave. This can mean that many employees are forced to take leave at the same time (usually because of a set date such as at March 31 each year) because they are about to loose it if they do not.

There are legalities involved in forcing employees to take leave and they are designed to protect employer liability against an employee who is reluctant to take leave over a protracted period.

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mudguard

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#2441234 19-Mar-2020 13:51

timbosan:

Mark:

Unused leave is "money" owed to people, accountant types get all jittery about it being owed ... we get nagged to take leave if we go past 20 days leave built up.

This - it's called Leave Liability - basically the amount a company would have to pay out in annual leave if everyone left that day. If it gets high, then than can be an issue.

Most companies work to manage this, also on the flip side people should be taking leave to rest and recover and enjoy life, not try and accrue as much leave as possible.

When I worked for a bank they used to send emails after two weeks asking you to organise leave. I can't recall what happened if you didn't but got the impression you would be simply be allocated leave. The issue we had in branches was someone senior would not to leave regularly and then go to Europe for eight weeks and the branch would be paralysed.

I've got a lot built up, nearly 50 days, but my job is a little odd as a lot of it is travelling so I don't always work five days, the first and last days are often just travelling back and forth.

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floydbloke

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#2441235 19-Mar-2020 13:52

frankv:

Mark:

Unused leave is "money" owed to people, accountant types get all jittery about it being owed ... we get nagged to take leave if we go past 20 days leave built up.

Yeah, but this scenario is different. He is saying that *everyone* has to take *all* their leave *now*. It sounds like the company is going into a shutdown, presumably due to Covid-19. If people take their leave now, they'll be sitting at home for 2-6 weeks doing nothing and at the end of the Covid-19 crisis the company won't owe any leave. If don't take their leave, they'll perhaps be sitting at home (or at the office) for 2-6 weeks doing nothing (depending on the industry the company is in), and then want to go on paid leave. The alternative might be to make people take leave without pay. Or lay them off completely.

That does make sense. I won't elaborate on what they do or who they are but they're not likely to have to shut-down or even slow-down due to Covid-19.

And I get the liability thing, but yeah, all staff, all leave. It seems odd.

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

pom532

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#2441246 19-Mar-2020 14:14

Maybe they don't qualify for the Govt assistance (and even if they did, it'd only cover 20 employees).

Maybe they just want staff to stay safe at home for a few weeks so everyone's fine later.

PolicyGuy

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#2441252 19-Mar-2020 14:18

The Holidays Act applies:

19 When employee may be required to take annual holidays

(1) An employer may require an employee to take annual holidays if—

(a) the employer and employee are unable to reach agreement under section 18(3) as to when the employee will take his or her annual holidays; or

(b) section 32 (which relates to closedown periods) applies.

(2) If subsection (1) applies, an employer must give the employee not less than 14 days’ notice of the requirement to take the annual holidays.

...

32 Requirement to take annual holidays during closedown period

(1) An employee who is entitled to annual holidays at the commencement of a closedown period must, if required to do so by his or her employer, take annual holidays during the closedown period whether or not the employee agrees to take the holidays.

(2) An employee who is not yet entitled to annual holidays at the commencement of a closedown period must, if required to do so by his or her employer, discontinue the employee’s work during a closedown period.

(3) If this section applies, the employer must give the employee not less than 14 days’ notice of the requirement to take the annual holidays or to discontinue the work (as the case may be).

Edit: try to make the formatting less awful

BlinkyBill

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#2441351 19-Mar-2020 15:15

ALL employee’s would be very unusual, unless at this time the company is in, say, servicing cruise ships or something affected by the measures instituted by the government. A manufacturing business dependant on trans-national shipping affected somehow. A seasonal business giving up for the season. Etc.

ALL employee’s mean no revenue is coming in. There would be closedown and startup costs associated with cessation of trading.

It seems very strange that the request is seemingly not accompanied by an explanation - a reasonable employer would say “this is our situation, we can’t sustain normal business operations, we need everyone to take leave”.

in regards to leave liability, businesses need to make provision to pay out on that liability - the current annual leave liability for my business, also 100 staff, is about $350k (rough workings only), and I have provision to pay $100k of it immediately. I manage the leave carefully so as not to accrue too much relative to the provision and overall balance outstanding.

i would be concerned that the OP’s business can actually pay for everyone to take all outstanding leave - I know I couldn’t do it from my normal business activities.

overall, without knowing more about the business activities, it seems very strange. If, however, the business is by nature seasonal or transient, then it might be a normal condition and understandable.

djtOtago

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#2441361 19-Mar-2020 15:33

floydbloke:

.....

(It doesn't help cashflow. Could it be they're in financial trouble and they'll have to pay out less if they need to lay off staff? They're far from directly impacted by the pandemic fall-out, their income is from regular subscriptions and last I heard they were looking to move premises because they were growing.)

Relocate to new premises...... in a different city or country possibly.

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Geektastic

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#2441495 19-Mar-2020 16:26

It’ll get worse if they reach the more common 30+ days of European nations!

floydbloke

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#2441821 20-Mar-2020 07:43

Thanks for all comments and insights.

Information is still a bit vague, and I'm getting it third-hand but it turns out that the company is in a bit of financial strife, revenues are down 40% and there may well be redundancies. I guess lower leave balances means less real money to be paid out to the unfortunate casualties.

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

floydbloke

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#2443095 21-Mar-2020 16:13

Just to add. Turns out about 50% of their revenue normally comes from recurring monthly fees/subscriptions, and the other half from consultancy and implementation work. The latter has, unsurprisingly at this time, dried up almost completely.

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

minimoke

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#2443921 22-Mar-2020 16:58

floydbloke:

Just to add. Turns out about 50% of their revenue normally comes from recurring monthly fees/subscriptions, and the other half from consultancy and implementation work. The latter has, unsurprisingly at this time, dried up almost completely.

Sounds like their revenue will be more than 30% down on last year. So eligible for the $585 per employee per week wage subsidy. up to $150,000 per employer. I'd be using that before annual leave.

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