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The Ultimate Guide to Vacation Management

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Managing employee departures is a core HR activity that every company must manage. Start-up founders or newly qualified HR professionals are plagued by some doubts. Will the sky fall if we just ignore this boring work? What are the benefits of vacation management? And anyway, what does vacation management actually mean?

So you want to know what vacation management is all about and put this knowledge into practice? Then you are right here. Although vacation management is simple compared to many other HR practices, there is still a lot to consider. Let's dive in.

What is vacation?

You don't have to work all days to earn your salary. Vacation is a day off from work that is granted in addition to the vacation days to which employees are entitled under the vacation policy.

A hundred years ago, workers worldwide had no right to paid vacation. Today, however, all countries except the United States require employers to provide employees with paid vacation and vacation time. Even in the US, 99% of companies voluntarily offer paid vacation.

Vacation or paid time off (PTO) is one of the most popular benefits after health insurance.

There are several types of vacation an employee is entitled to each year. Each state's law regulates the different types of vacation and the number of vacation days to be granted per year. Some of these types of leave can be earned, and employees can carry the credits over to the next year. Other types of leave expire at the end of the year.

In urgent cases, employees can also take leave for loss of pay (LOP) after they have used up their vacation balance. This is also known as Leave Without Pay (LWP).

Why do you need vacation management?

Vacation management is an important part of performance management and is needed for many reasons:

  • For compliance with laws
  • Retention of documents
  • Business operations and planning
  • Reporting and Analysis
  • Prevention of loss of income

Need for legal compliance

Aside from granting paid leave to employees, employers must maintain proper records of paid leave granted to employees for compliance purposes.

Retention of documents

Even if there are no compliance requirements, it is highly desirable to track employees' paid vacation days. Without accurate records, it is impossible to enforce and implement vacation policies.

Since paid leave is a benefit for employees, they need transparency and detailed information about leave policies, entitlements, leave balances and detailed transaction history. Failure to do so in these areas leads to dissatisfied employees, distrust and erosion of the employer brand.

The need for records is particularly evident when it comes to full and final accounting of employees. Lack of proper record keeping or a policy for encasement of accrued, earned vacation is a recipe for disputes and disgruntled ex-employees.

Business operations and planning

In large teams, on any given day someone is on vacation. However, work is hampered when most team members take vacation at the same time.

When approving vacation, a manager must consider the roster for that day and decide whether to approve or reject it. Not knowing which team members are on vacation on a particular day can lead to wrong decisions or delays.

A solid vacation management system can also be helpful in this area.

Reports and analysis

Preparing leave reports is an important concern for both management and compliance. Without a proper absence system in place, this can become a terrible experience every month.

Tracking absenteeism and identifying leave patterns that indicate unhappy employees are tasks that a proactive HR manager should handle.

However, in order for us to derive insights from this, accurate and up-to-date information is required.

Challenges in vacation management

Without proper vacation management, a whole range of undesirable situations arise. If you encounter any of these problematic scenarios, it indicates the need for better practice.

  1. A team member is not at work because he is on vacation, but the manager doesn't know about it.
  2. The HR department extended the vacation without prior approval from the supervisor.
  3. The customer is dissatisfied with the delayed service because the support technicians went on unplanned vacation.
  4. Employees do not inform HR that they are on vacation, so vacation accounting is inaccurate.
  5. The employees took far more vacation than they were entitled to.
  6. The company's vacation policies are not applied uniformly to all employees.
  7. Employees' vacation balance is not correct, which leads to disputes and employee dissatisfaction.
  8. Approvals are delayed, causing anxiety, inconvenience and expense for the employee.
  9. An employee must contact HR or their supervisor multiple times to request or approve their vacation.

All of these problems can be boiled down to these general challenges:

  • Low productivity
  • Bad customer support
  • Inadequate vacation planning
  • Low trust and low motivation of employees
  • Low employee satisfaction
  • Unauthorized absence from work
  • Loss of sales

What is vacation management?

Vacation management is the process of managing employee vacations in accordance with company vacation policies, not only to comply with legal regulations but also to improve employee retention, productivity and employer branding. There are three major areas of vacation management:

  • Development of vacation policies
  • Implement and enforce vacation policies
  • Routine work in vacation management

Vacation policies

Many small companies do not have written vacation policies. Without documented leave policies, it is difficult to enforce the policies and a cause of all of the problematic scenarios we described above.

Developing good vacation policies requires knowledge of the legal regulations relevant to your industry and location. In addition to compliance, a vacation policy must also take into account the company's interests, employee needs, and employee engagement.

Employees are entitled to many types of leave. Therefore, different guidelines must apply to different types of leave. Policies may also be different for different levels or categories of employment.

Several pieces of information are required to create a vacation policy:

  • Types of vacation
  • The company's weekend policy (e.g. 5-day week)
  • Holiday rules for each type of holiday.
  • Holiday calendar for the company

Types of vacation

There are different types of leave, either mandated by the government or voluntarily granted by companies. Below is a list of the most common vacation types:

  • Earned Vacation (EL) or Privileged Vacation (PL)
  • Casual leave (CL)
  • Sick leave (SL)
  • Maternity leave
  • Compensatory leave
  • Bereavement leave
  • Unpaid leave (LWP)

Weekend politics

A weekend policy specifies the weekly days off for a company. This must also comply with local laws. Companies can work with a 5-day or 6-day week. Some companies have alternating Saturdays off.

Holiday regulations

The heart of a vacation policy is the set of rules that determine the policy. The rules are either set by the government or determined by the company itself. These rules cover aspects such as eligibility, the amount of leave to be granted annually, the frequency of granting (monthly or annually), transfer rules, utilization, pooling of authorizations, coverage, procedure and so on.

Holiday calendar

In addition to paid vacation, companies must also set 8 to 14 general holidays for their employees. State governments release the official list of public holidays at the end of each year. Companies must then align their holiday calendar with the government list.

While employees take individual vacations based on their needs and convenience, the entire company remains closed on public holidays. Companies will also announce a list of limited or optional holidays that employees can take to avoid a complete closure of the company.

Routine administrative activities in vacation management

Setting vacation policies may be a one-time affair, but enforcing them is a full-time HR effort. Below is a list of all the things an administrator needs to do as part of their vacation management:

  • Accounting for vacation
  • Granting of vacation (periodicity, pro-rating, advances, offsetting)
  • Processing employee inquiries
  • Monthly payroll
  • MIS reporting
  • End of year activities

Vacation accounting

An easy way to understand vacation accounting is to compare an employee's vacation account to a bank account. A bank account is about money, a vacation account is about vacation balances.

While a bank account only has a single balance, a vacation account needs to keep track of vacation balances for different types of vacation such as earned vacation, sick leave, etc.

Like a bank account, the vacation balance increases as the vacation is earned or granted on a regular basis according to the vacation policy. The vacation balance decreases when an employee takes vacation.

Various vacation transactions are possible that either increase or decrease the vacation balance:

  • Grant (+)
  • Claim (-)
  • Cancel (-)
  • expiration (-)

The main task of an HR manager is to carefully record all vacation transactions for each employee. This is also a legal requirement.

In addition to vacation transactions, the manager must also track the net vacation balance for each vacation type. Vacation balances must match individual vacation transactions.

While annual or monthly subsidies are granted for many types of leave, some types of leave are freely selectable. There is no vacation balance for such types of vacation and employees are entitled to take these vacations under certain conditions.

The vacation year

The vacation balance is kept on an annual basis. For some companies, the vacation year is the calendar year, for others it is the fiscal year (e.g. April to March). Many vacation transactions take place in the context of a vacation year.

Granting of vacation

As required by law, employees are entitled to a certain number of vacation days each year for earned vacation, sick leave, etc.

Holiday allowances are granted as a flat rate for the entire year or monthly. Most companies prefer the monthly option because it simplifies the final billing when employees leave the company.

However, when vacation is granted monthly, it may happen that an employee needs more vacation than they currently have, but is still within their annual entitlement. In such cases, the employer can allow an overdraft and give the employees a negative balance.

End of year activities

At the end of the vacation year, vacation balances are carried over to the next year. There are government regulations here too. However, there is a cap on the maximum vacation balance that can be transferred.

What happens to the vacation that cannot be carried over to the next year? It will be forfeited or reduced depending on your organization's vacation policy.

In addition to the annual financial statements and juggling vacation balances, HR management also has to prepare the vacation list for the next year.

Helpdesk for employees

As with salaries or other benefits, employees need information, advice or support when managing their leave. They will also have questions about vacation policies or their vacation balances.

As with any other support function, accurate accounting and responsive service are essential. Otherwise, it is a major source of employee dissatisfaction, mistrust and loss of productivity.

Monthly LOP consultation

There are situations in which an employee has used up all of their credit but still needs to take vacation. In such cases, employees have the option to take unpaid leave.

Factories and other organizations that operate on strict schedules penalize employees for late arrivals or unauthorized absences. One type of penalty is either a vacation deduction or a LOP vacation transaction.

In larger companies where the finance team manages payroll, the HR administrator must make a timely recommendation for the LOP deduction to avoid delays in payroll.

MIS reports

For accounting and management control purposes, the HR Manager is required to prepare monthly MIS reports on leave balances and leave transactions. Here are some reports generated by the administrator:

  • Vacation summary report
  • Holiday transaction report for the month
  • Detailed vacation transaction report for the month
  • Negative vacation balance
  • Vacation redemption report
  • Holiday balances in one day
  • Annual vacation report

These reports typically contain information for an individual employee or for all employees. Additionally, analytical reports can also help identify vacation patterns or absenteeism.

In addition to the standard reports, ad hoc reports are also required from time to time if necessary.

Software tools

A solid information system is essential for professional vacation account management and recording.

Using spreadsheets like Microsoft Excel or Google Sheets is the easiest way to do this. However, to reduce the burden on the HR manager and truly automate the entire process, you need purpose-built vacation management software tools.

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

  • Management tools for HR managers
  • Self-service vacation portal for employees

Management tools

Leave management software automates all the various activities carried out by an HR manager. It includes setting up vacation policies, a rules engine, vacation accounts, tracking vacation transactions, financial statements, and much more.

Management tools come in different variants, e.g. as desktop software, as web-based software and as cloud-based software. The solutions are available at different prices, ranging from free to high-priced offerings.

Employee self-service (ESS) holiday portal

An employee leave portal is either a web-based or mobile app intended for employees and their managers. With an employee portal, employees receive up-to-date information about their vacation balances and transactions. Additionally, it offers automation of the leave process with the added benefit of automatic policy enforcement.

A solid vacation management system can help solve the many vacation management challenges and make life easier for the HR manager. The company benefits from the following advantages:

  • Smooth business processes
  • Time savings for the HR administrator, the employee and the manager
  • Uniform implementation of guidelines
  • Accurate vacation accounting
  • Reduction of costs
  • Transparency and higher employee satisfaction
  • Better employer brand

Effective vacation management is crucial for fostering a positive work environment, ensuring legal compliance, and maintaining operational efficiency. With the diverse challenges presented in managing employee leave, investing in dedicated tools like IceHrm can streamline processes, enhance transparency, and contribute to a more satisfied and productive workforce.

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