Correctly recording, tracking and accounting for leave is the most complicated dimension of any good payroll and HRMIS and one that is so often overlooked.

A major South African company, listed on the JSE, reports that it acknowledges that as much as 2% of the cost of paid leave is lost and thus written off due to inaccurate tracking and recording of leave taken. In an organisation employing thousands of people, this amounts to large sums of money each year.

One of the major problems is that the complexity is often glossed over, either because it is too difficult to incorporate into a system or because the company does not define its work flows and processes properly. As a consequence, many payroll systems end up forcing manual intervention or accommodating bad practices that exist in companies.

Key Factors

There are a number of key factors, all interdependent, that must be considered when designing systems to manage leave:

• generally accepted accounting principles
• labour and employment legislation
• company rules and policy regarding leave and leave accumulation
• HR and payroll system rules, including workflow design
• auditability
• ease of use

Accounting Practice

Good accounting practice requires that a company accounts correctly for leave: accumulated leave, leave taken, leave benefits applying when a staff member's employment is terminated for any reason and leave benefits on retirement.

In order to reflect its costs and potential, a company must account accurately for all of the above elements. Further, its approach to making the correct provisions in its balance sheet requires accurate input, recording and tracking. When a company's practices gloss over or lead to simplistic assumptions about the financial impact of leave and leave provisions, the company runs the risk of under-providing for potential liabilities. The late submission of leave transactions also severely impacts the accurate leave provision.

A large organisation that did not control its leave accumulation, was obliged to pay out 630 days' accumulated leave at the current rate of earnings to a single employee on termination. Imagine the consequence upon retrenchment.

Legal requirements

Labour legislation requires all companies to account accurately for leave and to manage the financial implications fairly when dealing with employees. Inaccuracies can lead to disputes, legal action and staff demotivation. Accurate recording of leave applications, actual leave taken and leave accumulated is essential, particularly in developing and implementing sound remuneration practices.

The interpretation of the value of leave should not be left open to differences of legal and accounting opinion.

When companies change their conditions of employment, in certain circumstances they will be required to maintain the employee's original conditions. Systems must be able to track and apply this accurately.

Company Rules and Policies

The rules relating to accumulation and taking of leave vary from company to company. Policies covering the administration of leave also vary. Payroll systems need to be able to accommodate these various rules without falling into the trap of accepting and entrenching bad practices. This requires flexibility of design in the system. Further, consultants installing and implementing systems must have a rigorous understanding of the accounting and legal aspects mentioned above.

Inherent in the design of good payroll and HR systems are the architectural rules around which they are designed. In managing transactions, balances and analysing trends, accommodation must be made for:

• unlimited types of leave
• rules for each type and each employee
• balance management
• automatic increases
• promotions and transfers
• absenteeism analysis
• full leave history
• dormant leave

Of relevance to management and in addition to accurate recording and valuation, the comprehensive analysis of trends is essential.

System rules must result in the full accommodation of and compliance with accounting and legal standards.

This all requires good work flow design that prevents fraud and inaccuracies. This must be translated into a rigorous system architecture.

Auditability

All processes, calculations and recording must be fully auditable, particularly in the event of changes, back-tracking and re-runs of payrolls. Late submissions of pay and leave transactions must be accommodated in a way that can be easily checked, traced and reconciled. Records must be kept of all changes and who made them.

Ease of Use

Systems are only effective if they are used correctly. Systems are only used correctly if they are simple, relate clearly to the process flow in an organisation and if the people using them understand what they are doing and why.

The advent of web-based systems and employee self-service has enabled a wider base of employees to access and input information. Ease of use therefore relates to many levels in an organisation - general management, HR management, employees and staff. Oversight of this is required through sound internal work flow rules and checks and balances.

In Conclusion

Finding the right system can be a challenge.  Whether your company is a growing mid-sized venture or a global enterprise with tens of thousands of employees, using a computerised leave management system which integrates with your Payroll will enable you to manage your leave policy correctly.  Educos offers an innovative mix of web-based solutions and outsourcing options which will enable you to do more than manage the administrative challenges associated with leave and absenteeism. Using the tools that are available, you will have all the information at your finger tips to measure not only your absenteeism rates and trends, but also analyse the cost that will impact the bottom line.   

In the final analysis, we have to be able to answer the question: How do we know that the company's leave recording and valuation is accurate?