Leave accruals: Examples of how leave is applied based on setup scenarios

The general setup of leave categories is explained here. To get a better understanding of how the leave settings work based on their setup, we have provided several examples below. These examples are what to expect when you disable the Limit leave accruals to the first pay run for the period option.

The option only becomes available when the leave category automatically accrues, has accrue in advance disabled and the allowance is set to either Standard Weeks per year or Standard Days per year. Enabling this option will allow leave to accrue in the first pay run for the pay period and cap any further accrual in pay runs with the same start and end date. The article will cover the following topics:

Example one  

Setup:

  • Leave accrual type: Automatically accrues on an ongoing basis
  • Cap: Accruals for leave category are not limited

Result:

Employee will start accruing leave as per the accrual rate. Leave will continue to accrue on an ongoing basis until the termination of the employee's employment. 

Example two

Setup:

  • Leave accrual type: Automatically accrues on an ongoing basis  
  • Cap: Accruals for leave category limited to a maximum 20 hours 

Result:

When an employee’s total leave balance reaches 20 hours, then leave will no longer continue to accrue. A message will appear in the pay-run advising as such. When an employee takes leave and their balance drops below 20 hours, leave will start accruing again until the balance reaches 20 hours. Opening leave balances are considered for capping purposes. 

Example three  

Setup:

  • Leave accrual type: Automatically accrues based on the employee's leave year
  • Cap: Accruals for leave category limited to a maximum 20 hours 
  • Carry Over: Entire balance

Result:

When an employee’s total leave balance reaches 20 hours for the leave year, then leave will no longer continue to accrue. A message will appear in the pay-run advising as such, Upon commencement of another leave year, the entire leave balance will carry over and the employee will be allowed to accrue a further maximum of 20 hours.

The accrual will recommence in the pay run dated after the employee's leave year. With this setup, regardless of how much leave an employee takes during a leave year, the amount accrued will never exceed 20 hours per leave year. Opening leave balances are not considered for capping purposes. 

Example four  

Setup:

  • Leave accrual type: Automatically accrues based on the employee's leave year
  • Cap: Accruals for leave category limited to a maximum 20 hours 
  • Carry Over: Maximum of 5 hours

Result:

When an employee’s total leave balance reaches 20 hours for the leave year, then leave will no longer continue to accrue. A message will appear in the pay run advising as such. Upon commencement of another leave year, the employee will be allowed to accrue a further maximum of 20 hours. The accrual will recommence in the pay run dated after the employee's leave year.

Additionally, upon commencement of a new leave year, only a maximum of five hours of leave (accrued from the previous year) will be carried over. If an employee's balance is greater than five hours, the balance will be adjusted in the pay run.

With this setup, regardless of how much leave an employee takes during a leave year, the amount accrued will never exceed 20 hours per leave year. Opening leave balances are not considered for capping purposes. 

Example 5:  

Setup:

  • Leave accrual type: Automatically accrues based on the employee's leave year
  • Accrue in advance: Yes
  • Cap: Accruals for leave category limited to a maximum 152 hours 
  • Carry Over: Entire balance

Result:

When employee's commencement date = the leave year date

The total amount of leave owed to the employee within the leave year will be paid upfront in the employee's first pay run. The following message will be shown in the pay run to indicate as such: 

The employee will then no longer continue to accrue leave during the leave year. Upon commencement of the next leave year, the entire leave entitlement will again be added to the employee's balance in the pay run dated after the employee's leave year.

Result:

When an employee's commencement date is after the leave year date

The difference here is that the employee will receive an upfront pro-rata amount of the annual entitlement in the first year. This is because the employee has only worked a portion of the leave year. From the second leave year and thereafter, the employee will receive the full upfront leave amount. 

What date does the platform use when calculating the leave date?

The platform will use the employee’s start date. This can be found on the Employee File -> Details page. You can however, override this at an employee level via the employee’s Leave Allowances screen. The anniversary date (set within the employee’s Details screen) has no impact on the employee’s leave year date.

What happens when a user creates a new leave category part-way through the leave year that is set to accrue in advance?

The first pay run processed after the leave category being created will accrue an upfront pro-rata amount of the leave entitlement. Leave will then no longer accrue for this leave type until a pay run is processed for the pay period after the next leave year.

What happens when a user updates an existing leave category part way through the leave year so that it is now set to accrue in advance?

This scenario is not supported. Turning on the Accrue in Advanceea ture for an existing leave category is not supported. The reason is you are changing an existing leave category from accruing on an ongoing basis to accruing based on a leave year. As the employee has already accrued leave historically, there is no way for the platform to know when the leave year started for the historic leave accrued. As a result, the platform will not correctly calculate the difference between what has already accrued and the further amount that needs to be accrued upfront.

How does the leave adjustment work in the pay run when the next leave year begins?

The leave type will be added to each employee's pay run record in the first pay run processed after the leave was setup, or the employee's first pay run (for new employees). After that, we will use a negative leave adjustment to reverse out the (old year's) balance when the new (leave) year's balance is accrued for an employee - this will happen in the first full pay period after the employees anniversary date each year.

The settings you put in place for this leave category determine how/if this adjustment will show up on the pay slip so:

  • If the leave category settings are set to hide the accruals and balances, the leave adjustment we add to clear out /add new leave will not be displayed on the pay slip (at all)
  • If the leave category settings are not set to hide the accruals and balances, the pay slip for the pay run where we add the leave adjustment to clear out the (old) leave balance and the add (new) leave accrual will display (in the Leave Details section on the pay slip) as:
    • Leave Accrued: 38 hours (e.g.)
    • Leave Taken: 38 hours (e.g.)
    • Balance: 38 hours (e.g.)
 

Therefore, if you do not want to see the adjustment leave show up on the pay slip, unless the employee‌ takes this type of leave, you just need to adjust the leave category settings to hide accruals and balances. 

You​ will find the leave category settings under the Pay Run Settings heading on the payroll settings tab on the payroll dashboard. Click on the Leave category to expand the settings and tick the boxes to Hide accruals and balances.

If leave is set to accrue in advance, why didn't my employee accrue the full amount?

The way the 'accrue in advance' leave calculation works is that it looks at three things:

  1. The amount of hours of leave that needs to be accrued.
  2. The period of time that it needs to accrue over - i.e. a year.
  3. The pay period schedule (weekly, fortnightly, monthly) that the accrual will appear in.

So, for example, if you are wanting your employees to accrue 76 hours (2 weeks) per year of a particular leave category in a weekly pay run, the leave calculation is 76 (hours) / 52 (weeks) = 1.4615 hours per week. And since the leave is set to accrue in advance, you would expect the full 76 hours to accrue for employees getting paid 38 hours in the weekly pay run. 

However, the leave does accrue in advance using the above calculations except for the first week, i.e. the pay run that the accrual appears in. What this means is that if an employee does not work the full 38 hours, or if the pay categories used to pay the employee are not set to accrue leave, the platform will pro-rata the accrual based on the actual hours paid against pay categories that are set to accrue leave.

For example, if in the pay run the employee only worked 35.5 hours of pay categories that accrue leave, the calculation would be 35.5 (hours) / 38 * 1.4615 = 1.3653. The rest of the calculation would be 1.3653 (hours) + (51 (remaining weeks) * 1.4615 (the 'standard' weekly accrual) = 75.90385 hours. If this happens, the easiest solution is to edit the leave accrual by clicking the pencil icon within the pay run and entering the desired total accrual amount. 

If you have any feedback or questions, please contact us via support@yourpayroll.com.au.

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