5 crucial reasons why it’s important for your business that your team members take their annual leave
Warmer weather is here, which means it’s time to confirm with your teams what their plans are for the summer holidays. Many of you will have already done this now that we are racing towards December, but there could be those in your team who will ‘play it ear’ or be non-committal to locking in their annual leave until the last minute.
As a small business owner, it’s easy to overlook the importance of ensuring your staff take their annual leave. In a small team, it can be difficult to do without key people while they are on holiday, and it often means that you or others may have to cover their role. However, encouraging employees to take time off significantly benefits you, your business and your team. Here’s our reasons why:
1. Reduce your financial liability
Unused annual leave accumulates as a financial liability on your books. By encouraging employees to take their leave, you reduce this burden and improve your cash flow. The longer leave goes unused, the bigger the payout when employees eventually take it or leave the business.
Did you know that annual leave payments are calculated using the employee’s hourly rate at the time they take annual leave? This means their annual leave value increases as soon as they get a pay increase.
The actual rate they are paid is calculated using the rate of at least the greater amount of:
- Ordinary Weekly Pay (OWP) as at the beginning of the annual holiday, or
- the employee’s Average Weekly Earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday.
For more about how to calculate annual leave payments please refer to the Employment.govt.nz website or give us a call to discuss your specific circumstances.
2. Boosting team wellbeing and mental health
Taking annual leave is essential for mental health and wellbeing. When employees step away from work, they return more focused, refreshed, and productive. Ignoring this can lead to burnout, increased unplanned absenteeism, and lower output, all of which cost your business in the long run.
Given that 61% of NZ workers have reported to be experiencing the effects of burnout in the past three months, taking a break over summer is paramount for thriving in 2025. This aligns with the findings of Adecco’s 2023 Global Workforce of the future report, where it reported that 65% of workers had experienced burnout in the past 12 months and that 78% of workers are not encouraged to take all of their annual leave.
3. Health & Safety compliance
Fatigued employees are more prone to accidents and errors, especially in industries where physical or mental demands are high. By prioritising rest and recovery through annual leave, you help meet your health and safety obligations, protect your team, and reduce risk.
WorkSafe has a range of resources, and many studies have examined the impact of fatigue on the workplace and its performance. If you are struggling to engage in a conversation with your most at-risk employees about taking annual leave, give us a call.
4. Attracting and Retaining Talent
Encouraging annual leave shows employees you value their work-life balance. Flexibility or enhanced leave entitlements can set you apart in a competitive market, as top talent seeks employers who support their well-being. This benefit often ranks among the top three factors employees consider, even overpay, when deciding to stay or switch jobs. Consequently, it aids in long-term employee retention.
5. Sustaining High Performance and Improving Creativity
Business leaders often rank consistent performance and creativity as high on their list of must-have candidate requirements. Regularly disconnecting from work can substantially increase a person’s ability to think outside the box and respond better to work demands.
Psychology Today reported that “research conducted by Dr Barbara Fredrickson, author of Positivity, showed positive emotions – the kind we feel on a relaxing holiday – make us more inventive and able to think outside of the box”.
When employees take minimal or no annual leave for extended periods, it can lead to decreased productivity, diminished well-being, and a reduced ability to cope with stress, ultimately affecting their overall performance. This scenario can negatively impact not only the employees but also their employers, colleagues, and the overall success of the business.
Not all holidays and breaks away from work are created equal. Nonetheless, employers can direct their employees to take leave depending on the circumstances. At Stapleton Consulting, we help businesses develop HR practices that promote employee and employer well-being while optimising business outcomes.
The bottom line is to encourage your people to take leave. It’s not just about rest; it’s about ensuring the long-term success of your business.
