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Labour Complexity

Calculating Annual Leave

Annual leave calculations: getting it right every time.

Deborah Hartung

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Calculating how much leave is due to an employee, can sometimes become extremely frustrating, especially if the employee only works a limited number of hours per week or per month. It becomes even more complicated when trying to determine what type of leave to allocate in the event of a family emergency or illness, or over a public holiday or forced annual shut down periods.

Here’s all the information that you need in order to ensure that you get annual leave calculations right every time:

Basic annual leave allocation

Annual leave is paid ‘vacation’ leave that employees qualify for at a rate of 1 hour for every 17 hours worked, or 1 day for every 17 days worked and it accrues in arrears (you have to have worked the days or the hours, to have the leave due to you).

Employees don’t need to give you any information about the reasons for requesting or taking annual leave, but you do need to keep records of how much leave is due and how much has been taken.

The average employee who works Mondays to Fridays from 08:00 to 17:00, works a total of 21.67 days per month and qualifies for a total of 15 working days’ paid annual leave per year.

Annual leave cycle

This is a 12 month period that starts on the first day that the employee commences employment with an organisation – it is not a ‘calendar year’. So, if an employee starts with you on 1 June 2011, their annual leave cycle starts on that same day, for 12 months, until 31 May 2012. On 1 June 2012, a new annual leave cycle of 12 months, commences.

Public holidays and illness

Public Holidays are not deducted from an employee’s annual leave and if a public holiday falls within a period of authorised annual leave, it is not counted as annual leave.

In the event that an employee falls ill during an authorised period of annual leave, you can request a medical certificate from a medical practitioner registered with the Health Professions Council of South Africa (HPCSA) and you can convert the period relating to illness, to ‘sick leave’ and credit the employee’s annual leave balance.

Forced annual shutdown periods

In certain industries, there may be a forced annual shut down period (ie construction, engineering, certain manufacturers) and employees need to be made aware of such shut downs. An employer may limit the number of annual leave days that an employee takes in the remainder of the year, so as to ensure that the employee has sufficient leave available to them over the shut down, or alternatively, if the employee does not have sufficient leave available, they may take unpaid leave.

Insufficient leave availability

In the event that an employee does not have sufficient annual leave days due and available to them, as an employer, you have two (2) options:

a)  Unpaid leave: in this scenario, every day that the employee is absent from work, is deducted from the employee’s monthly or weekly salary payment. You have to make the employee aware of this in advance and they need to understand the financial impact that absence will have; or

b) Convert to a ‘loan’: calculate the monetary value of the period of absence (you do this by working out the employee’s daily rate of pay: their monthly salary, divided by 21.67 equals their daily rate of pay). This can be converted to a ‘loan’ which the employee may either physically pay back on a monthly basis (and then still get their monthly leave days accrued to them), or they may just work back the time which means that you have effectively given them all of their annual leave in advance and the leave days are not accruing to them, but back to the company. This needs to be discussed with the employee and they need to agree to the terms in writing. This method is highly effective in the event where you are allocating leave in advance and you want to protect your organisation in the event of the employee’s resignation.

Communicate leave balances

You are legally required to inform employees on every payslip, how much annual leave they have due to them.

Leave administration

In order to reduce the likelihood of errors, it is advisable that you inform all your team leaders, line managers and supervisors of a designated day per week for the submission of all leave forms or requests which they have received, as this helps you to stay on top of leave allocations and calculations at all times.

It is also advisable that you ensure that you conduct a leave audit at least twice per year to ensure that all leave that has been taken by employees, has indeed been captured on your payroll and HR systems.

Remember that ‘leave’ translates into monetary value and poses a financial risk to your business. Keeping leave records and calculations up to date not only makes administration simpler, it also reduces your risk exposure.

Deborah Hartung has almost 15 years’ experience in Human Resources and Labour Relations management and has consulted across various industries. Visit the Hartung website or the HR Guru site should you require assistance with any matters relating to HR or Labour Law within your organisation, or should you wish to improve your knowledge through attending informative training sessions and workshops.

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4 Comments

4 Comments

  1. Trevor Luyt

    Dec 8, 2011 at 08:00

    “You are legally required to inform employees how much annual leave they have due to them and the easiest way to do this is on their payslips”

    Is this really so? Where in the BCEA does it say this? – I can’t find reference anywhere.

    • Entrepreneur

      Dec 9, 2011 at 08:05

      The legal requirement and practice that has evolved over the past ten years is around always providing employees with correct and up-to-date information around their salaries, their annual leave entitlements and their benefits.

      The easiest way to do this is on their monthly payslips. With pension funds etc, there is usually an annual benefit statement that is sent to employees.

      The BCEA does not specifically state that the leave information needs to be on an employee’s payslip.

      Administratively, you also make your HR or payroll person’s life a lot simpler, and you reduce loss of productivity due to constant queries from staff on how many leave days they have or how much leave they can take at any given time.

      It is advisable that you provide all line managers and supervisors with a monthly leave recon for employees in their team, showing annual leave, sick leave, maternity and family responsibility leave info per employee. Doing this makes it a lot easier to pick up on disturbing trends, patterns of absenteeism or possible abuse of sick leave, so that the matter may be addressed timeously.

      Most payroll systems have very easy-to-use leave modules and automatically include annual leave info on employee payslips. These systems also make it easy to perform leave recons, extract reports and track trends.

  2. tclark

    Sep 18, 2015 at 14:42

    I cant see how the annual calculation iro working days comes to 21.67 days per month. For 2013-2016, there are 250, 250, 251 and 251 working days respectively (5 day working week, remove public holidays). Tthis translates to 20.88 days per month over the past 4 years.. so calculating leave pay using 21.67 essentially deprives the employee of 0.79 days per month.. Might not seem like much, but can be significant when encashing lots of leave days.. As to the “take leave and be taxed normally, but encash leave and get nailed at 40%” is another unfair matter as far as I am concerned..

  3. Xander Collen

    Mar 23, 2016 at 16:41

    Good day,

    Do you perhaps have one with all the South African Holidays?

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Labour Complexity

Why You Should Consider Retrenchment Cover for Your Employees

Not sure if a retrenchment benefit is for you? Keep reading for more insight into why considering retrenchment cover for your employees is best for them and you

Amy Galbraith

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As a business owner, looking after your employees is an important part of what makes your business a success. You need to be sure that all of their needs are being met, especially in terms of income protection and retrenchment insurance.

If you’re lucky, you may never need to retrench anyone, but if you do, having retrenchment insurance in South Africa can help your employees immensely in keeping debt at bay.

You can invest in retrenchment cover in South Africa in order to protect your staff. The retrenchment cover can provide your employees with a lump sum which allows your employees to manage any issues that might crop up while they are unemployed. It will also help with temporary disability cover should an employee be injured at the workplace.

Not sure if a retrenchment benefit is for you? Keep reading for more insight into why considering retrenchment cover for your employees is best for them and you.

It Can Help to Replace Their Income

If one of your staff members is the sole breadwinner in their household, being retrenched can have a devastating effect on their family’s way of living. If you offer them the option of income protection cover, this will replace their income while they are looking for other employment.

This will also help if they have permanent disability due to an accident at work and are unable to earn a salary for a certain amount of time. The benefit pays up to six months of income so that the insured can cover expenses. For example, your employees can use this money to make car insurance payments or rent payments while they are unemployed. This can help them to look for work without having the added stress of not earning any money.

Employees Can Maintain Their Savings Accounts

By offering retrenchment cover, you are allowing your employees to have better financial planning abilities, such as maintaining their savings accounts despite no longer being employed.

Your employees will be able to keep this savings account intact and rely on this money for its intended purpose. They can also keep this money in the account and use it when the income protector cover has run out and they are still unemployed. Be sure to speak to a financial adviser about how long your employees will be covered in order to adequately make plans for their future.

Planning for VAT and Petrol Increases

When you are unemployed, any increase in prices such as petrol or VAT can negatively affect your financial situation,  so it’s preferable that your employees are able to weather any price increases without having to dip into their savings, or take out a loan they can’t afford.

But retrenchment cover will allow them to continue living their life, unaffected, regardless of these changes. While they might have to cut back on their spending, a VAT increase will not affect them as harshly as it would if they did not have any income protection. Being able to prepare for an uncertain future will ensure that your employees are happy and satisfied in their jobs, cementing their loyalty to your company.

It Can Help with Illnesses During Retrenchment

We can never predict what awaits us in life, which is why you should consider retrenchment insurance for your employees. If they were to become ill during the time they are retrenched, expensive medical bills will pile up, putting them into a further debilitating financial situation.

But, if your employees have retrenchment insurance, they will be able to use this money to pay for medical expenses. For example, if one of your employees has young children who need to be rushed to the hospital for an injury or illness, the retrenchment cover will allow them to pay for these bills without too much stress. Being ill while unemployed can become expensive and stressful, but you can alleviate this stress by providing cover for your employees.

It Will Show Them You Care

Having an employer who truly cares about them means that employees will be happier, healthier and more productive. And this is great news for your business. You can ensure that your employees are taken care of if you need to retrench them due to whatever reason.

Having loyal employees is not only good for your company but good for your employee morale too. You are only successful as a business if your employees are happy and willing to work hard to reach your company goals.

Retrenchment cover will allow them to be less stressed in their positions and will make your workplace a more productive one. Be sure to consult with your staff before making any financial decisions that will affect their future as their opinions matter the most in this instance.

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Labour Complexity

Charity Begins At Home This Festive Season

3 Ways to invest in your own employees.

Nation Builder

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We often only think of corporate social investment (CSI) as an organisation’s actions in the surrounding communities (philanthropy and volunteering), but CSI is also inward facing. By promoting employee well-being, your business can be a vehicle for change, not only in the society around it, but also directly in the lives of those working there.

Here are some ways you can invest in your own employees during the festive season:

1. Involve your employees in a higher purpose

This might sound like a bit of circular reasoning, but studies have shown that involving employees in CSI activities has several benefits. People involved in meaningful activities tend to be more motivated and willing to go that extra mile because of the higher good associated with the work. CSI programmes also:

  • Increase co-operative behaviour and employee relationships
  • Enhance the sense of company identity
  • Improve employee retention and commitment
  • Create an attractive company culture.

Related: What’s The Fuss About Corporate Social Investments?

2. Provide the space for physical and mental breaks

The end-of-year and festive period is often a very stressful period. Balancing festive and family duties with increased pressure at work due to colleagues taking leave, looming year-end targets and planning for the next year can take a toll.

You, as the employer, can ease this stress by ensuring that there are systems in place that define holiday working policies. Promote time and productivity management to plan workflows and keep the momentum going in these last weeks of the year. Also make sure you have effective communication strategies in place for plans that are in the pipeline for the new year, so that employees can get their heads around upcoming changes. This will allow employees to plan ahead and build in time to switch off, knowing that all of the boxes have been ticked.

3. Constructive feedback/motivation

Also, take the time to acknowledge and show appreciation for the hard work that your staff has put in throughout the year. As the saying goes “valued employees are valuable employees.”

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Company Posts

How Medical Savings Accounts Are Changing – For The Better

By Jeremy Yatt, Principal Officer of Fedhealth

Fedhealth

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The concept of medical savings accounts (MSA) emerged in the industry in the early 1990s, reputedly when Discovery founder Adrian Gore was working at Liberty. At that time medical scheme benefits for different kinds of day-to-day healthcare were specified, so for example, you’d get a certain amount of Rands to spend on your over-the-counter medicine, or for optometry services. But this was problematic, as people’s daily medical needs are all so different. So, you’d have medical aid members calling their medical schemes saying, “I haven’t used my spectacle limit this year, so can I transfer it to use on medication instead?”.

The idea for MSAs was to pool these separate benefits into a total Rand amount, that you could then spend how you wanted, and more importantly, retain if you didn’t use them all. Initially, medical schemes were reluctant to follow this idea, as they thought it would lead to under-servicing: medical aid members might be unwilling to spend their savings, and so might not get the proper day-to-day medical attention until it became a crisis and they were hospitalised. However this was not the case, and MSAs proved very popular.

At first, there was no real limit on how much of your contributions as a member could go into your MSA, so most schemes allocated around 40-50%. Many schemes also pushed major medical procedures like MRI scans into savings, which was effectively a way of forcing members to self-fund these costly medical expenses. As a result, the Medical Schemes Act was amended in 1998 to impose a 25% limit on the benefits that could be put into MSAs, which largely forced the schemes to be responsible for these major costs.

Related: Why Your Employees’ Health Is Your SME’s Wealth

Under the previous structure there was no disincentive not to use your benefits, particularly as they didn’t roll over from year to year like Medical Savings do. It was therefore not uncommon for a call centre to get queries from members asking how much was available in their different benefit areas, so that they could make sure they used them all up.

MSAs solved these sorts of problems by giving medical aid members increased convenience and autonomy, which is why schemes have been using them for the past 20+ years.

The concept of an MSA isn’t far removed from a loan. Like a loan, an MSA lets you use a sum of money when you want to, but you still have to pay for it regardless of whether you use it or not. It forms part of the registered gross contribution to the medical scheme. Take the example of a member who has R12 000 they can access in their MSA each year. Effectively they are paying for this “loan”, contributing R1000 a month, starting in January. However an MSA means they can use all of that R12 000 upfront, such as if they need expensive dental treatment (crowns etc.) at the start of February that costs R12 000.

In this situation, the member has only paid for R1000 worth of that R12 000 “loan” (with their January contribution), so they effectively “owe” the medical scheme R11 000, which they then pay off over the remainder of the year. If the member left the scheme straight after their dental work, the scheme would then contact the member to repay the R11 000, as they still owe that amount.

Related: Is There A Link Between Physical And Financial Wellness?

The concept of giving members access to medical financing led us to develop our new MediVault offering for day-to-day medical expenses. Describing it as a loan holds negative connotations for some, but it’s not that different from the concept of an MSA: in fact, we see the MediVault as a natural evolution. All it means is that you won’t need to pay for day-to-day savings upfront. Instead, you’ll be allocated money for these everyday medical expenses in your personal MediVault and, once you’ve taken the money out, you only have to pay it back over a period of 12 months – completely interest-free. This is a far better option than taking out an expensive loan from a traditional loan company, or getting it from an unscrupulous loan shark.

Our MediVault offering is not at all about loaning funds to people irresponsibly. We’re not creating a monster that’s going to indebt you – we’re just changing the way you can access funds for your healthcare. After all, health is everyone’s most worthwhile investment, and we want to give people the flexibility to make it their top priority.

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