Negative Accrual Balance – Should You Allow It?

Negative leave balanceOccasionally, employees need to take more time off than they have accrued. In other words, they want to spend more than they have in the bank.

These requests might come up for any number of reasons: Maybe it’s the holidays and the employee is just shy of what she needs to take off for a holiday trip. Maybe a baby is born prematurely and the parent doesn’t have enough paid time off to swing maternity or paternity leave. Maybe the employee wants to take a vacation during the summer when the kids are out of school but hasn’t accrued enough time since January 1st.

Probably the most common situation is simply that new-hires want to take time off before they have accrued enough time. Whatever the reason, it often happens that employees want to take more time off than they have earned. So the question is, what are you, the employer, going to do about it? Are you going to allow it or not?

If the employer chooses to offer the employee more time-off than he has accrued, the employer is essentially offering a loan. The employer is loaning the employee money for the time that he or she takes off from work. This is probably fine to do in most circumstances but it’s important to maintain some best practices to make sure everyone is on the same page and nobody gets burned. A written policy should be given to each employee who is offered this privilege.

Adding the Policy to the Employee Manual

HR Info Desk offered some guidelines for adding a negative leave policy to the employee handbook:

“Need not be applied to all employees, but it must be applied consistently.

  • Should provide a set of guidelines that will be used in granting permission to borrow vacation time.
  • Should state the number of days that can be borrowed.
  • Should state the permissible reasons for borrowing.
  • Provide a statement that, when resigning, the employee must reimburse the company for a negative time-off balance.
  • Provide the formula that will be used to calculate the amount owed for borrowed time.
  • Should state the procedure for requesting vacation time. Who must approve it?
  • Should state that the person approving the request will take into account a department’s staffing needs.
  • Should state the factors the person approving the request will rely on to approve or deny the vacation time, such as the employee’s disciplinary and attendance records, and length of service or passage of the probationary period.
  • Should indicate what happens to borrowed vacation time when an employee leaves the company. Should clearly state that the employer reserves the right, consistent with provincial and federal law, to deduct unreimbursed time from employees’ paycheques.
  • Should specify the value of the time the employee is receiving.
  • Should specify what the employee is expected to pay back and on what schedule, and the consequence of not doing so.
  • Should refer to a written request to borrow vacation time. A prior written agreement should be drafted in accordance with the term of the policy, and with an authorization to be reimbursed from employee’s paycheques; this agreement should be included in the employee file.”

Paying Back the Accrual Loan

Employees can pay back the loan in one of two ways. This should be agreed upon by the employer and employee before the accrual loan is ever taken.

  1. Allow the negative balance to become positive again as the accrual rate is applied. If the accrual bank is added to on a monthly or hours-worked basis, then the balance will slowly climb back up into the positive numbers. If the accrual rate is once yearly, then it will become positive again at the employee’s anniversary date.
  2. Deduct time from the employee’s paycheck. The above requirements would need to be previously agreed upon between the employer and employee. This is not the most common solution when the employee remains employed but it is an option. Deductions from paychecks can be unsettling so just make sure that this arrangement is agreed upon before letting the accruals go negative.

If you keep track of accruals manually, then you will want to write down the number of hours “borrowed” and then at each paycheck, subtract the amount of accrual time earned in that period from the amount that was borrowed. You will do this until the balance owed is eliminated. At this time, the employee will start earning positive accruals again.

If the employee is to pay the loan back by deducting from their paycheck, multiply the number of hours borrowed by the employee’s hourly rate. This will be the amount the employee needs to pay the employer back. When taking this route, the employee should continue to accrue time-off as usual.

Not to toot our own horn, but an easier way to do this would be to let our automated system do the work for you. It’s more accurate since the system makes the calculations. Pieces of paper never get lost and important information never gets forgotten. There is never any mistaking the number of hours taken or requested since all of that is documented on the employee’s time sheet.

How This Works In the Software Service

Tacking negative leave is possible with our time tracking service. When employees make requests that bring their accrual balances into the negative, our system simply calculates that negative balance. Employees see how much they owe their accrual bank right from their own time sheets. They also will see it as it becomes positive again.

If the agreement is that the employee must pay back the loan by deducting the amount from his or her paycheck and they had entered the time-off as time on the time sheet, then the employer can simply adjust the employee’s settings to reflect the correct accrual amount. You wouldn’t want to both deduct the amount from the employee’s paycheck and maintain the negative balance on the accruals sheet.

As always, if administrators need help with any of this, they can always call or email for help!

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