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

encashing annual leave

At the end of each year, a few employees will invariably have some of their annual leaves remaining. As we approach the year-end, this topic will no doubt be making the rounds again.

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 can 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)

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, but only if they are a workman earning up to $4,500 a month or a non-workman earning up to $2,600 a month.

This means the Employment Act does not protect other employees for their remaining annual leaves, and they may have to forfeit them at the end of the year.

Employers have 4 main options to manage your employees’ remaining annual leaves each 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

Each option will have pros and cons, and some companies would already have your own guideline for managing excess annual leaves. One thing to note is that we are no longer in a pandemic environment where it was virtually impossible for employees to take annual leaves. Employers that were more lenient back in 2020 and 2021, may need to consider the implications of their annual leave policy in the long-run.

Should Employers Allow Your Workers To Encash Annual Leaves?

During the pandemic, when taking annual leaves was almost impossible and many employees may have been working harder and longer, and figuring out remote working, encashing them may have felt like the decent thing to do.

But, we are no longer living in those extraordinary circumstances. Businesses may need to rethink their annual leave policy.

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 in hand. With retrenchment creeping up, even if employees are not affected in terms of job security, 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 this may result in some employees trying to balance their commitments (and even mental well-being) to their personal detriment. 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 leaves 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 receive a pay raise in 2023, you will be paying a  higher rate for annual leaves compared to their average salary throughout the year. If you allow them to roll it over to 2024, any pay raise would also make “cheaper” annual leaves more expensive to encash at a later date.

Encourage Employees To Take Their Annual Leave

Realistically, encouraging your employees to take leave will likely give them the headspace to destress or offer them respite from thinking about work just for a few days. It’s difficult to think that anyone can work all year round without needing a break – either to spend on themselves or with their loved ones.

Business leaders can also lead by example, taking a few days off to spend precious time with your family or explore a personal hobby. This may further encourage your employees to make full use of their annual leaves.

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

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