How are companies typically handling unused leave balances?

Annual leave is one of the recurring topics that has come to the forefront of the ongoing Covid-19 employment related discussions. Many companies have raised questions and sought guidance in relation to the management of annual leave during these unprecedented times.

The most common approach for companies in the management of unused leave balances is the implementation of enforced annual leave. In order to avoid excessive accrual of annual leave balances by year end, many employers are asking their employees to use up to 50% of their annual leave entitlement before the end of June, or July 2020 with some companies setting the actual dates of annual leave. Employers are within their rights under the current employment legislation, Article 76 of the UAE labour law and the Ministerial Resolution No. 279/2020, to enforce periods of annual leave. Companies should manage enforced annual leave in a fair and equitable way, providing employees with a reasonable amount of notice for set annual leave dates.

For some companies, where it may not be reasonably practical for their employees to take annual leave due to circumstances related to Covid-19, the following options are being considered:

1. Annual Leave Carry Over
   Under UAE Labour legislation, Article 78 of the UAE Labour law, the employer has the option to allow employees to carry over leave to the next year - it should be noted that the employees annual leave cannot be deferred more than once in a two period. We would suggest that in the case that the leave is carried over, it should be the first to be used when leave is taken in the next year. Some companies are also reviewing their current annual leave policies to enable carry over for the following year.
   
2. Payment in lieu of annual leave not taken
   Employers may opt to proceed with paying employees for leave that they cannot use. Payment should be processed as set out in Article 78 of the UAE labour law - the employer is required to pay the employee their normal salary plus allowances, in lieu of leave.
   

Accrual of annual leave has the potential to put a company’s cashflow at risk. It should be carefully managed to avoid excessive payouts in the case of resigning or terminated employees. In any instance, it is imperative for employers to be cognisant of the legislation applicable to such options, specifically the annual leave provisions set forth in Articles 74-81 of the UAE labour law.

If staff don't take leave, will this create a glut at the end of the year with staff all wanting to take leave at the same time?

If employers do not proactively manage their employees leave and unused balances it is likely that a glut will be created at the end of the year. From a business continuity perspective, it is vital for employers to consider their approach to annual leave management and put in place measures to mitigate the risk of excessive accrual of annual leave balances. Furthermore, from a health and mental wellbeing aspect, it is important for employers to ensure that their employees use up their statutory annual leave entitlements during the current leave year.

How should companies handle this?

Options available to employers to avoid the excessive accrual of annual leave and the creation of a glut at the end of the year include implementing interim measures such as;

• Directing employees to use 50% of their annual leave entitlement for 2020 as well as any carried over leave from 2019 by end of Q2 2020
• Setting mandatory annual leave dates for employees
• Assigning accountability to line management to ensure that all direct reports have an annual leave plan in place for 2020

For some companies, where it may not be reasonably practical for their employees to take annual leave due to circumstances related to Covid-19, the following options should be considered;

1. Annual Leave Carry Over
   Under UAE legislation, Article 78 of the UAE Labour law, the employer has the option to allow the employee to carry over leave to the next year however, it should be noted that the employees annual leave cannot be deferred more than once in two years. We would suggest that in the case that the leave is carried over, it should be the first to be used when leave is taken in the next year. We have spoken to companies who are currently reviewing their current annual leave policies to enable carry over for the following year.
   
2. Payment in lieu of annual leave not taken
   Employers may opt to proceed with paying employees for leave that they cannot use. Payment will be processed in accordance with the provisions set forth in Article 78 of the UAE labour law whereby the employer is required to pay the employee their normal salary then an additional allowance can also be added in lieu of leave – this allowance in lieu of leave not taken is calculated on the basis of their basic wage only, it doesn’t includes housing, transport or other allowances.

Accrual of annual leave has the potential to put a company’s cashflow at risk. It should be carefully managed to avoid excessive payouts in the case of resigning or terminated employees. In any instance, it is imperative for employers to be cognizant of the legislation applicable to such options, specifically the annual leave provisions set forth in Articles 74-81 of the UAE labour law.

Should they pay staff for leave they cannot use or roll it over to the next year?

As a result of the current COVID–19 situation, it may not be reasonably practicable for employees to take some or all of their annual leave.

Under UAE legislation, Article 78 of the UAE Labour law, the employer has the option to allow the employee to carry over leave to the next year however, it should be noted that the employees annual leave cannot be deferred more than once in two years. We would suggest that in the case that the leave is carried over, it should be the first to be used when leave is taken in the next year.

As an alternative to carrying over leave, employers may opt to proceed with paying employees for leave that they cannot use. Payment should be processed in accordance with the provisions set forth in Article 78 of the UAE labour law whereby the employer is required to pay the employee their normal salary plus, they can also include compensation in lieu of leave, this is calculated on the basis of their basic wage component of their overall remuneration package.

Is there also a risk that employees will simply lose the leave if they don't use it?

Employees are protected by the current UAE employment legislation, specifically the annual leave provisions set forth in Article 78 of the UAE Labour Law. However, during these unprecedented times what is evident is the collaborative approach of employers and employees who are working together to reduce the financial impact of Covid-19 on their respective businesses. We have spoken to companies where employees are in acceptance of compromises such as the forfeit of unused annual leave, for the benefit of their company, their colleagues and themselves. Employees acknowledge their roles in ensuring business continuity and maintaining the viability of their companies.

And of course, are a lot of companies asking staff to take leave now even though they cannot travel very far or do much with their time?

Taking a break from the pressures of work is an important aspect of annual leave. Although employees may not be able travel very far or do much with their time it is probable that they will benefit from taking time out to recuperate, especially during a period where they may be facing increased levels of stress.

With some companies also asking staff to take unpaid leave, how does that affect leave balances?

Although there are no specific guidelines to refer to on this matter, it is commonly accepted that annual leave does not accrue during a period of unpaid absence unless specifically stated in an employment contract.

The general consensus is that an employee accrues annual leave for actual hours worked and therefore during a period of unpaid leave it is assumed that holiday leave entitlement will not be accrued.

End of Service Benefit does also not accrue during a period of agreed unpaid leave.

We suggest companies adopt a collaborative approach when addressing this situation with their employees. If companies choose to adopt the policy of annual leave not accruing during periods of unpaid leave, this should be clearly communicated with employees and noted in their respective unpaid leave agreements.

And are many companies looking to adjust leave policies at this time?

Yes, many companies are looking to adjust their leave policies to address the management of unused leave. Suggested changes to leave policies include the reference to the management of annual leave carry over as well as defining the responsibility of line management to ensure that their reports have an annual leave plan in place for the calendar year ahead. Some employers are assigning timelines for the use of leave carried over, for example any leave balance carried over from the previous leave will be capped and must be taken by the end of Q1.

Many companies are taking into account global guidance as well as UAE regulations and are implemented interim measures rather than permanent changes to leave policies. For example, employees leave balances must be consumed by the end of 2020 and that no leave balance is permitted to be carried over into 2021. The case may be that employees accrue a negative leave balance which is to be offset against future leave days.

Jessica Ashford, deputy chief executive of PRO Partner Group, spoke to thenational.ae about the most common approach companies are adopting for unused balances is enforcing annual leave. Find more here

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