What is leave leakage?

Leave is a liability that most organisations accrue for, and which is reduced as employees take leave. Leave leakage is when a salaried employee is absent and the leave is not recorded, resulting in the leave liability not being reduced and the employee getting a paid day off. 

Leave leakage is usually an invisible cost to the business and can generally only be estimated by measuring the gain once effective controls are implemented that reduce or eliminate the cost. 

 There is a high risk of leave leakage during holiday periods and especially around Christmas because staff absences are normal and there is seldom an audit of the approved leave against absences.  

One organisation ran a test during the Christmas period by sending an email to all staff in the middle of the break and then reconciling the automated out-of-office replies against the approved leave.  

Leave valued at over $250,000 was recovered through this simple exercise, even though it depended on employees setting up an out-of-office reply.  

It may be possible to estimate leave leakage by reconciling other data sources that indicate employee absence with approved leave, such as security systems and network logins. 

Leave leakage is highly likely in organisations that rely on paper forms for leave requests. Paper forms can easily go missing, resulting in the leave not being recorded.  

For example, if the employee fills out a paper leave request and takes it to their manager for approval, if the paper form is then lost, the employee gets the day off and the manager accepts the employee’s absence.  

Both annual leave and sick or personal leave can be subject to leave leakage. Sick or personal leave is especially prone to leakage because it is often applied for retrospectively, if the employee remembers to request it.  

Ideally when an employee calls in sick, a leave request is entered into the payroll system right then and there so that it is not forgotten. 

A good payroll system can minimise or eliminate leave leakage. The following features are important in this respect: 

• Online leave requests and approvals – unlike paper forms, a leave request entered via a portal or app will not be lost it transit and does not require entry by the payroll team. 

• Managers should be able to see current leave requests via a portal or app so that they can reconcile absent staff with an approved leave request. 

• Sick or personal leave requests should be able to be made via a mobile app so that they can conveniently be created when the employee calls in sick. 

Time and attendance systems can also provide a means of controlling leave leakage, although these are generally not used for salaried staff.  

One of the best things you can do to minimise leave leakage is providing employees with both user-friendly portals and mobile apps.  

Mobile apps are so convenient that employees can use them for notifying their manager that they are sick.  

At the same time as the leave request is logged, the manager can be notified by a pop-up on their phone, enabling them to call and check on the employee and either approve or decline the leave request. 

By implementing effective leave systems and technologies, leave leakage and its organisational cost will be reduced.