How does the System Behave when Taking Leave?

Taking leave is one of the core features of a payroll system. Unpaid leave aside, the usual expectation when applying 'leave taken' in a payroll system is that the employee is automatically paid for the leave taken.

This system is no different although there are a couple of different cases to consider when understanding how 'leave taken' will work.

1) Employees that work a standard number of hours (eg: full time/salary staff).

For this case, employees who are paid a set number of hours by default in a pay run should have a timesheet setting of "Do not use timesheets" or "Use timesheets for exceptions only". The timesheet setting is located in the employee's Pay Run Defaults screen.


In this case, when they take leave, they're already being paid for it in the pay run so we just need to reduce the leave balance by the number of hours of leave that they take. This all happens automatically. By default, leave earnings are also separated from ordinary earnings in the pay run. We do this by adding two earnings lines when leave is taken - these lines simply remove the leave hours from the primary pay category and pay them against a leave pay category.


NB. the net effect of these two earnings lines is $0 so you must remember to include any leave hours with other hours worked in that pay period. If there are no other hours worked in the pay period, you'll have to use the Add Earnings option from the Actions button within each employee record in the pay run and add an earnings line for the leave hours being taken.


2) Employees that use timesheets

For this case, the employee should have a timesheet setting of "Use timesheets to submit all time worked". The timesheet setting is located in the employee's Pay Run Defaults screen.

When timesheet employees take leave we will automatically create a corresponding earnings line to 'pay for' the leave. This happens automatically.


Leave Without Pay

The main case that is handled slightly differently is 'Leave Without pay'. The default setting for this leave category is to not pay when leave is taken:


So what happens to this leave suing the 2 options discussed above? For option 1, we will add an earnings line with a negative number of hours:


For option 2, we simply wouldn't add the corresponding earnings line.


Leave Transfer Rules

The main use of the leave transfer rules (apart from 'leave without pay') is for if you need to allocate the payments for leave taken to a separate account in your ledger. In that case, you'd create a separate pay category called 'Annual Holidays' (for example) and configure the payment setup of the leave category as "Custom" and then assign as follows:

  • 'deduct hours from': 'Employee's primary pay category'
  • 'transfer hours to': "Annual Holidays" pay category.

The important thing to note is if leave transfer rules are configured the employee's pay rates must be maintained on the Annual Holidays pay category.


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