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The Cost of Inadequate Leave Management

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Tracking employee leave and attendance is one of the most fundamental aspects of the payroll process, yet many organizations do not confer it the attention it deserves. The process in itself is not time-consuming, provided the latest technologies are employed to make it error-free and speedy.

However, done in the wrong manner, the fallouts are immense. On one hand, there is a direct impact on business continuity; on the other hand, there is a negative influence on the employees. Leave management gone wrong can quickly spiral over to spell out lack of productivity and low employee morale. Definitely not what businesses want.

Here is a closer look at the problems arising from misaligned leave management

Unavailability of Staff affecting business continuity

Resource planning and allocation are critical components of making any business sustainable, and leave management is an important input in this process. Employers and managers must have visibility of their employees’ leave eligibility, the status of leaves taken and outstanding, and their alignment with the applicable leave policy. Only then can roles and projects be adequately staffed. Employees taking excess unplanned leaves and more leaves than eligible creates a staff shortage and is a hindrance to business continuity. In today’s fast-paced business world where the customer expects service as of yesterday, the unavailability of staff can prove a lethal jab to the business, affecting its overall credibility.

Legal issues

The labor laws of every country outline certain leave dictates for employees, often varying depending on the nature of employment. Employers are supposed to comply with these laws. These days, we are seeing a greater variety of work arrangements i.e. full-time workers, part-time workers, remote workers, contract workers, consultants, and so on. This raises the complexity of leave compliance, making non-compliance a real risk for modern-day employers. The cost-hit and reputation-hit of such employee-related non-compliance can be significantly damaging to organizations. Organizations must protect themselves from legal fallouts.

Financial Risk

Labor laws and the company leave policy define how many leaves can be encased versus how many leaves can be carried forward. Leave encashment on accrued leaves is a financial liability to the business. A company having to pay out a person the leave encashment on his or her separation directly hits the Profit & Loss statement of the company. It is therefore important that employers be aware of the financial outstanding in terms of due leave encashments so that it does not come as a surprise and upset the cash flow.

Employee morale

Mismanagement of leaves can have a direct impact on employee well-being and morale. Employees who do not take enough leaves may face the brunt of overwork and stress due to a misaligned work-life balance. On the other hand, employees who take too much leave may indicate lower employee engagement levels and lower commitment, and act as a red flag for employee exits.

Taking too many leaves within a team can also raise inter-team issues and conflicts. Managers and employees must therefore always know the actual state of leave utilization in real-time. Moreover, they must be encouraged to discuss any leave-related concerns openly. An employee tends to be happy when he or she gets leaves when he or she really needs it, as opposed to being denied leaves that are rightly due. I

n fact, employee leave is considered to be an important personal issue and if employees do not get leave when they most need it, it leads to big-time demotivation and demoralization. Planning leaves in advance, tracking utilization in real-time, and discussing needs openly are some of the ways supervisors can grant leaves without negatively impacting the business output.

The Role of HR in streamlining Leave Management

Payroll comes under the purview of HR, and HR professionals and payroll professionals must exact the necessary attention and scrutiny to the leave management process, as they do to other HR arenas.

Related article: The True Cost of Employee Absence

Here are some of the look-out areas HR must pay attention to

Dig into data

The first step to effective leave management is to arm oneself with the necessary leaves information. HR must analyze the leave data with respect to leaves eligibility and policy adherence, leaves utilization (planned and unplanned), and contingency planning for optimum resource allocation. For this, they must constantly refer to leave data from the HR systems and keep it updated.

Estimate financial implications

HR must work in conjunction with the Finance department and keep a tab on the financial liability associated with leave utilization. Company and department-wise cuts will help know where the maximum bleeding is occurring and help take corrective measures in leave management.

Track leave rejections

HR must act as the employee advocate too, ensuring that employees get a fair chance to avail their leaves. Frequent leave rejections or cancellations by managers must be brought under scrutiny, since these may lead to employee dissatisfaction.

Track excess leaves utilization

A person taking too many leaves may be an indicator of a potential exit. Unplanned absenteeism, leaving early, coming in late are all behaviors that have been associated with employee exits. HR should monitor such leave-data, treat it as a red flag, and take the necessary retention measures if needed.

Education and Coaching

Supervisors may not always realize the repercussions of rejecting a team member’s leave. HR must therefore educate and coach managers on how to manage their teams’ leaves better, so as to not cause employee disengagement due to leave mismanagement, at the same time ensuring productivity.

To carry out the above tasks accurately, HR must be equipped with the right information and resources concerning employee leaves. Tracking all these metrics manually is a dire task, riddled with potential misses. This is where an automated online leave management system works wonders. Not only does it offer accurate leave data in real-time, but provides various stakeholders like managers, team members, functional heads etc. the necessary access and visibility to leave data and workflows.

Leave management components such as Time Sheets, Clock-in and Clock-out systems, project-based allocation, seamless approval and rejection workflows, and monthly views of who is on time-off go a long way in making leave management highly objective and efficient.

Leave management may seem a tiny cog in the wheel of organizational effectiveness, but it is often the primary cog, steering the movement of other organizational enablers like employee engagement and organizational compliance.

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