The old adage ‘time is money’ may become true for all employees with the passing of the Holidays Amendment Act 2010 (which comes into force on 1 April 2011).  From that date, employees will be able to request that up to one week of their four-week annual holiday entitlement be paid out. For the employee, this may mean additional cash in the hand (at the cost of annual holidays). For the employer, this may mean being able to avoid the costs, lost productivity and disruption that can arise due to covering the employee’s absence on holiday (at the cost of paying out that holiday).

While employers may be attracted to the benefits of using the cashing out provisions as a means of managing their balance sheets, they will face difficulties if they lose control of the process. Careful planning is advised to ensure that employers don’t use up excessive amounts of time and money administering holidays.

Potential difficulties may arise from the unpredictable nature of holiday and pay out requests, as the nature and timing of requests may be as varied as your employees. If they wish, employees may make multiple requests for holidays in any given year.  There is no upper limit on the number of requests employees can make, nor is there a requirement that holiday requests are for administratively convenient portions of time (or are made at administratively convenient times).

Difficulties may also arise from the administrative burden of the process, which falls principally on staff responsible for payroll and accounts.  Employees’ holiday requests must be considered within a reasonable time and responded to in writing, whether the request is approved or not.

There will be times of the year where employers may come under pressure from employees to agree to requests. Holiday periods and end of year closedowns are likely to be preceded by a flurry of requests. Businesses will need to be aware of the impact on cash-flow of holiday and pay-out requests.  Preserving the integrity of your cash-flow may require you to make some difficult decisions and this is a potential cause of friction between employer and employees.

It remains to be seen how popular the paying out option will be with employees. Their decisions will often be governed by their own self-interest, and this may differ from what is best for the business. For example, it may be tempting for employees to request a pay out rather than a holiday in difficult economic times. This can impact negatively on an organisation’s bottom line, because a slow patch may be the very time you need employees to take holidays the most!

Legally, an employer’s most important safeguard lies in the discretion to refuse requests.  You could go as far as having a policy that no employee holiday pay out requests will be considered at all. Employers are not obliged to give reasons why any particular request is refused and have the ability to consider requests on a case-by-case basis.

Employers also have the option of introducing policies which spell out the conditions under which requests will or will not be approved. This allows them to maintain some measure of control over the process.  Such policies are more likely to be successful if they are introduced in a systematic manner, are relevant to the business and are understood by employees.

We can help formulate and introduce policies tailored to the requirements of your business.  With careful planning, you can enjoy the benefits of increased productivity without the associated stress and disruption.  Remember, your time costs money too!