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Many businesses are surprised each year at the real costs of employee leave and the impact it can have on cash flow ahead of the Christmas period, according to an RSM principal.
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RSM warns on 'crippling' costs of employee leave
08 December 2016
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While many businesses gear up for an increase in employees going on leave over the Christmas period, it’s important these businesses understand the real costs of leave and how to minimise them.
“Proper employee payroll management is essential to avoid unplanned-for and potentially crippling expenses,” said RSM principal Katie O’Connor.
“If companies don’t know what employee leave will cost in the next 12 months, then they should seek professional advice to avoid the traps.”
Ms O’Connor said that for many businesses the immediate concern is having the resources to cover the absent employee’s job, but there are many other factors that need consideration.
“For example, they may have increased wage costs because they need to hire a casual replacement or pay current staff overtime rates,” she said.
“If the employee has accumulated more than four weeks’ leave, the business may need to pay holiday leave at a higher rate compared to when the employee earned it. They may also be required to pay leave loading.”
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According to Ms O’Connor, these factors can put considerable pressure on a business’ cash flow if they are not addressed correctly.
She highlighted that long service leave, in particular, can have significant implications for a business.
“If an employee decides to request three months’ long service leave, and the business has not budgeted for it, then it may not be able to pay suppliers at the same time,” Ms O’Connor said.
“This could force a business to access its overdraft facility, for which it will be charged higher interest and bank fees. However, the business could have avoided these extra expenses by just being aware of their obligations and ensuring funds were available when needed.”
On top of this, the annual leave and long service leave entitlements vary from state to state, so it’s important that businesses use the correct governing legislation or agreement when calculating leave entitlements, according to Ms O’Connor.
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