Should You Allow Employees To Encash Their Remaining Annual Leave This Year?

encashing annual leave

Similar to 2020, few employees would have had taken the bulk of their annual leaves. As we approach the end of the year, this topic will be making the rounds.

How Many Annual Leaves Do Employees Get A Year?

In Singapore, employees get a minimum of 7 days of paid annual leaves per year as mandated by the Employment Act. Employees are also entitled to an additional day of paid annual leave for every year that they stay with their employer up to a maximum of 14 days of paid annual leaves.

How Long Employees WorkedAnnual Leave Entitlement
1 year7
2 years8
3 years9
4 years10
5 years11
6 years12
7 years13
8 years and above14

Of course, companies may go beyond this by providing more annual leaves at your discretion.

Read Also: 17 Types of Leaves Offered By Singapore Companies (Statutory And Non-Statutory)

Many Employees Haven’t Had The Chance To Take Annual Leaves In 2020

The problem – which is a similar one to 2020 – is that this year hasn’t allowed many employees to take as many leaves for three main reasons:

#1 Some employees have had to work harder and longer providing required services. This group of employees typically work in the public sector, healthcare facilities and the logistics sector.

#2 Another group of employees may not have had the time to take as many leaves is those working in high-growth sectors or essential services – e-commerce, digital services and technology and delivery, grocery stores and handyman services. Many companies in high-growth sectors saw their growth boom during the lockdown in 2020, and this continued as we remain in 100% work-from-home today. Some companies providing essential may have been stretched for manpower, especially since our borders have been largely closed.

#3 In general, this year has not provided many opportunities for people to take annual leaves. International travel was closed for much of the year. Only now it is looking to re-open via Vaccinated Travel Lanes (VTLs). Working-from-home, while not easy as employees have greater responsibilities to take care of their children or elderly parents, also provided slightly more flexibility in daily schedules and thus reducing the need to take annual leaves. 

Read Also: Vaccinated Travel Lane; Air Travel Pass; Reciprocal Green Lane: What You Need To Know About Singapore’s Travel Agreements

So, What Can Employees Do With Remaining Annual Leaves This Year?

According to the Employment Act, employers have to allow employees to carry forward unused annual leaves to the next 12 months, only if they are a workman earning up to $4,500 a month or a non-workman earning up to $2,600 a month.

For such employees, the re-opening continues smoothly and they can use their unused annual leaves next year. Having said that, such employees may also have many unused annual leaves from 2020.

This also leaves many other employees not protected by the Employment Act for their remaining annual leaves, and potentially having to forfeit them.

Employers have 4 main options to manage your employees’ remaining annual leaves this year:

  1. enforce a block leave for employees to give them a well-deserved break
  2. let your employees’ annual leaves be forfeited
  3. let employees roll it over to next year
  4. allow employees to encash their remaining annual leaves

Some companies would already have your own guideline for managing excess annual leaves. However, given the extraordinary circumstances these couple of years, there could be an argument for more flexibility to be exercised.

In a departure from normal standards, the Public Service Division (PSD) and Ministry of Health (MOH) have stated that they will allow more time for employees to use their annual leaves and even encash up to nine days of annual leaves in 2020.

Typically, such civil servants and healthcare workers can only roll-over their remaining annual leaves for one year, and it will be forfeited thereafter. This means their 2019 leaves rolled over will be forfeited at the end of 2020. With this move, civil servants and healthcare workers have more time to use their 2019 rolled-over leaves and are able to encash up to nine unused annual leaves in 2021.

Should Employers Allow Your Workers To Encash Annual Leaves?

This may have provided a signal for private employers to be more flexible with their employees annual leaves. For those who have in 2020, this year provides another conundrum as the situation remains very similar.

For companies providing essential services and those on a huge growth spurt, providing flexibility for employee annual leaves – either in encashing them or allowing them to roll it over – feels like the right thing to do. After all, your employees are playing their part in keeping the company afloat and/or able to leverage on a growth opportunity when it most needed it. 

For companies trying to cope with COVID-19 disruptions, your employees are also working hard and may even be on reduced salary. Enabling flexibility in extending the timeframe they can use annual leaves also feels like the right thing. Of course, if your company cannot afford to encash annual leaves, employees may understand.

Read Also: MOM Responsible Retrenchments – Guideline For Companies To Be Fair And Decent

Pros And Cons Of Allowing Employees To Encash Their Annual Leaves

As with every decision, there will be pros and cons.

Pro: #1 Boost Employee Morale

Employee morale will be higher and it also gives your employees more cash during an uncertain period. With unemployment still at heightened levels, even if they were not affected in terms of job security or pay cuts, their loved ones very likely may have been affected.

Pro: #2 Being Fair To Your Employees 

By allowing your employees to encash their annual leaves, you are also being fair with them and you remove any need for employees to be calculative. You also don’t want your employees to feel forced to take annual leaves just so they do not feel short-changed, especially if your company and other employees would be better off if they just worked those days.

Con: #1 Employees May Hoard Annual Leaves For The Cash Payout

You don’t want employees to hoard leaves right now (and in future) just so they can encash it at the end of the year. The problem isn’t just about the money – it’s that working-from-home may result in some trying to balance other commitments while claiming that they are “working”. It may also leave employees who really want to destress or unwind with a staycation with a tougher choice of going for the money or taking their leaves.

Con: #2 It Will Cost You Money

On the other hand, encashing leave may be a strain on your cash flow. This may be very important for your business today and you may not be able to afford it, or you may not realise that it will be important in a few months’ time. 

Either ways, backtracking or running into financial difficulties in the future will not be an ideal situation for you or your employees. At the same time, there is still a win-win outcome for both parties – you can provide flexibility by allowing employees to extend their use of their annual leave. 

Con: #3 Your Employees Will Remember This Move

Setting this precedent could also lead employees to think that this policy may continue indefinitely. And even if your employees do not think that, it will surely be on their minds when they see annual leaves being forfeited in the future.

Con: #4 Future Annual Leave Encashment May Be More Expensive

As a smaller point, for any employees who received a pay raise in 2021, you will be paying a  higher rate for annual leaves. If you allow them to roll it over to 2022, any pay raise would also make the annual leaves more expensive to encash at a later date.

Encourage Employees To Take Their Annual Leave

Besides just the accrual of annual leaves or being able to encash it, COVID-19 has also taken a toll on your and your employees’ well-being. For the better part of two years now, few people have been able to take a meaningful break.

Encouraging your employees to take leave, especially as some of them also have remaining $100 in SingapoRediscovers vouchers may give employees the headspace to destress or offer them respite from thinking about work just for a few days.

You can also lead by example, taking a few days off to spend precious time with your family. This may further encourage your employees to take their leaves.

This article was first published on 17 November 2020 and has been updated with new information.

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