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Everything you need to know on Leave Management System

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Handling leave is a central HR activity that all companies must handle. Founders of start-up companies and newly trained HR employees are often in doubt. Will the sky fall if we just ignore this tedious work? What are the benefits of leave management? And what does leave management actually mean?

Do you want to gain a good understanding of what leave management is all about and put the knowledge into practice? Then you've come to the right place. Although leave management is simple compared to many other HR routines, there is still a lot to get to grips with. Let's take a deep dive.

What Is Leave?

You don't have to work every working day to get paid. Leave is days off in addition to the holidays to which the employees are entitled according to the leave policy.

A hundred years ago, employees globally did not have the right to paid leave. But today, all countries, except the United States, require employers to offer paid leave and paid vacation days to their employees. Even in the US, 99% of organizations offer voluntary paid leave.

Leave, or paid time off (PTO), is one of the most preferred benefits after health insurance.

There are several types of leave that an employee is entitled to during a year. State laws regulate the various forms of leave and how many leaves can be granted per year. Some of these leave rights are earned and can be carried over to the next year. Other types of leave expire at the end of the year. In emergencies, after the leave balance has been used up, employees can also take leave against loss of pay (LOP). This is also called "leave without pay".

What Is The Need For Leave Management?

Leave management is an important part of benefits management and is necessary for many reasons:

  • To comply with laws and regulations
  • For keeping accounts
  • Business operations and planning
  • Reporting and analysis
  • Prevent income leakage

Need to comply with the law

In addition to giving employees paid leave, employers must also keep track of the paid leave granted to employees. In Karnataka, for example, Form F or Form 14 must be entered. The same applies in most Indian states.

Record keeping

Although there is no requirement to comply with the regulations, it is highly desirable to keep track of the employees' paid leave. It is impossible to enforce and implement the leave rules without accurate registration.

Since paid leave is a staff benefit, employees need transparency and detailed information about leave rules, entitlements, leave balances and detailed transaction history. Deficiencies in these areas lead to dissatisfied employees, mistrust and a weakened reputation.

The need for documentation becomes extra clear in connection with the final settlement. If there is no proper documentation or guidelines for redeeming earned holiday, the stage is set for disputes and disgruntled former employees.

Operation and planning

In large teams, there is always someone on leave. But work becomes difficult if most team members take leave at the same time.

When a manager is to approve leaves, he or she must use the duty schedule for the day in question as a starting point and decide whether the leave is to be approved or refused. If you don't know who in the team is on leave that day, you can end up with bad decisions or delays.

Here, too, a good leave management system can be of great help.

Reporting and analysis

Reporting leave is a common need both for management and to comply with laws and regulations. If you don't have a proper absence system, this can be a terrible experience every month.

Tracking absences and uncovering leave patterns that indicate disengaged employees are activities that a proactive HR employee should handle.

But accurate and up-to-date information is necessary for us to gain insight.

  • Low productivity
  • Poor customer service
  • Lack of good holiday planning
  • Low trust and motivation among employees
  • Low employee satisfaction
  • Unauthorized absence
  • Income leakage

What Is Leave Administration?

Leave administration is the administration of the employees' leaves in accordance with the company's leave guidelines, not only to meet statutory requirements, but also to increase the employees' commitment, productivity and employer branding. There are three main areas within leave administration:

  • Designing leave guidelines
  • Implementation and enforcement of the leave guidelines
  • Routine administration of leaves

Guidelines For Leave

Many small businesses lack written guidelines for leave. Without documented leave policies, it is difficult to enforce the policies, and that is one of the reasons for all the problematic scenarios we have discussed above.

In order to design good leave guidelines, one must know the statutory rules that are relevant to the industry and the place where one works. Although it is important to comply with laws and regulations, a leave scheme must also balance the interests of the business, the needs of the employees and the commitment of the employees.

Employees are entitled to many types of leave. Therefore, there must be different guidelines for different types of leave. The guidelines may also vary for different levels or job categories.

Designing guidelines for leave requires several inputs:

  • Types of leave
  • The company's weekend policy (eg: 5-day week).
  • Leave rules for each type of leave.
  • The company's public holiday calendar

Holiday types

There are several types of leave which are either required by law by the authorities or which are voluntary for the company. Here is a list of some of the most common forms of leave:

  • Earned Leave (EL) or Privileged Leave (PL)
  • Casual Leave (CL)
  • Sick leave (SL)
  • Maternity leave
  • Compensation-free
  • Leaves in case of death
  • Leave Without Pay (LWP)

Guidelines for weekends

The weekend rules define the weekly days off in a company. Here, too, the guidelines must be in accordance with local laws. Companies can have a 5- or 6-day week. Some companies have every other Saturday off.

Rules for leave

The core of a leave scheme is a set of rules that govern the scheme. The rules are either laid down by the authorities or determined by the company. These rules cover aspects such as eligibility, how much leave to be granted each year, frequency of grants (monthly or annually), rules for transfer of leave, use of leave, approval clubs, coverage, process and so on.

Holiday calendar

In addition to paid leave, companies must also announce 8 to 14 public holidays for their employees. The various state governments publish the official list of public holidays at the end of each year. The companies must then determine a bank holiday calendar that is in line with the authorities' list.

Although the employees take individual holidays according to their needs and convenience, the entire company is closed on public holidays. The companies also provide a list of limited or optional holidays that the employees can take to avoid the company closing completely.

Routine Administrative Activities In Leave Management

Defining leave policies may be a one-time event, but enforcing them is a full-time HR activity. Here is a list of everything an administrator has to deal with as part of leave management:

  • Accounting of leaves
  • Allocation of leaves (periodicity, pro rating, advance, settlement)
  • Handling questions from employees
  • Monthly salary payments
  • MIS reporting
  • Activities at the end of the year

Accounting of leaves

A simple way to understand the vacation account is to compare an employee's vacation account with a bank account. A bank account is about money, while a holiday account is about holiday balances.

While a bank account has a single balance, a leave account must keep track of the balance for different types of leave, such as earned leave, sick leave, etc.

Like a bank account, the leave balance increases as leave is earned or granted periodically in accordance with the leave policy. The leave balance decreases when an employee takes leave.

It is possible to take different leaves that either increase or decrease the leave balance:

  • Allocation (+)
  • Use (-)
  • Redeemable (-)
  • Lapse (-)

The HR administrator's most important task is to keep track of all leave movements for each individual employee. It is also a statutory requirement.

In addition to the holiday transactions, the administrator must keep track of the net holiday balance for each holiday type. The leave balance must agree with the individual leave transactions.

While many leaves have annual or monthly grants, some types of leave are discretionary. There is no leave balance for such leaves, and the employees are entitled to take these leaves under certain conditions.

The leave year

Leave balances are tracked on an annual basis. Some companies use the calendar year as their leave year, while others use the fiscal year (eg April to March). Many leave transactions take place in connection with a leave year.

Grant of leaves of absence

According to the legislation, the employees are entitled to a certain number of leaves for accrued leave, sick leave etc. each year.

The leave allowance is given as a lump sum for the whole year or every month. Most companies prefer monthly payment, as it simplifies work with the final settlement when the employees leave.

On the other hand, when you grant leave monthly, an employee may need to take more leave than he or she has for the year. In such cases, employers can allow overdrafts and leave employees with a negative balance.

Activities at the end of the year

At the end of the holiday year, the holiday balance is carried over to the next year. Here, too, there are rules from the authorities. However, there is a cap on the maximum amount of holiday that can be transferred.

What then happens to holiday that cannot be carried over to the next year? It is redeemed or forfeited, depending on the organization's leave rules.

As well as closing the accounts for the year and juggling holiday balances, the HR administrator must prepare next year's holiday list.

Help desk for employees

In the same way as with pay and other staff benefits, employees will need information, guidance and transaction support to manage their leave. They may also have questions related to the leave rules or the leave balance.

As in all other support functions, accurate accounting and good service are important. Otherwise, this is a significant source of dissatisfaction, mistrust and loss of productivity.

Monthly LOP advice

There are situations where an employee has used up their entire balance, but still has to take leave. In such cases, the employees have the opportunity to take leave without pay.

Factories and other organizations that operate with strict working hours punish employees who arrive late or have unauthorized absences. One type of penalty is either a leave deduction or an LOP transaction.

In larger companies where the finance department administers the payroll, the HR administrator must advise on LOP withdrawals in time to avoid delays in payroll processing.

MIS reporting

The HR administrator must prepare monthly MIS reports on leave balances and transactions to ensure good accounting and management control. Here are some reports that can be prepared by the administrator:

  • Summary report for leave
  • Report of the month's holiday transactions
  • Detailed report of the month's holiday transactions
  • Negative leave balance
  • Report on payment of leave
  • Leave balances per day
  • Annual holiday report

These reports are usually reports for a single employee or for all employees. In addition, analytical reports can also help to identify patterns of leave or absence.

In addition to standard reports, there is always a need for ad hoc reports as needed.

Software Tools

A good information system is a prerequisite for professional leave calculation and registration.

The easiest way to do this is to use spreadsheets such as Microsoft Excel or Google Sheets. But to reduce the HR administrator's effort and truly automate the entire process, you need specially developed leave management software tools.

We have two categories of software tools for two different user groups.

  • Administration tool for HR managers
  • Self-service leave portal for employees

Administration tools

Leave management software automates all the various activities handled by an HR administrator. It includes setting up leave guidelines, rules engine, leave accounting, tracking leaves, year-ends and much more.

Management tools come in different varieties, such as desktop software, web-based software and cloud-based software. The solutions are available in different price ranges, from free to expensive solutions.

Self-service leave portal for employees (ESS)

An absence portal for employees is either a web-based app or a mobile app intended for employees and their managers. With an employee portal, employees receive up-to-date information on leave balances and transactions. It also provides the opportunity to automate leave management, with the added advantage that the guidelines are automatically enforced.

A good leave management system can help solve the many challenges associated with leave management and make life easier for the HR manager. The company achieves the following benefits:

  • Smooth business operations
  • Time savings for the HR administrator, the employee and the manager.
  • Uniform implementation of guidelines
  • Accurate absence accounting
  • Reduced costs
  • Transparency and higher employee satisfaction
  • Better reputation as an employer

Efficient leave management is critical for business success. From compliance and accounting to employee satisfaction, a well-implemented leave management system, like IceHrm, streamlines processes, enhances transparency, and boosts organizational productivity.

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