Amid growing cost-of-living pressures and forecasts of a looming recession, many Aussies are reluctant to take annual leave. What implications might this have for organisations – and how should leaders respond?

Australian employees are feeling the pressure of financial instability, suggests new research from ELMO. As cost-of-living pressures continue to rise and talks of a potential economic recession grow louder, many employees are pocketing their annual leave to keep financial stress at bay.

Based on a survey of 1000 Australian employees, the latest ELMO Employee Sentiment Index has revealed that three quarters (75 per cent) of Australian employees have avoided taking leave due to factors such as rising costs and workloads.

ELMO’s findings show that 23 per cent of employees have accrued more than the annual leave entitlement (20 days). In fact, the average employee has just under an additional four days over the entitlement (23.8 days).

A breakdown of how much annual leave Australian workers are currently sitting on can be found below.

According to Danny Lessem, co-founder and CEO of ELMO, this trend could have significant repercussions for both employees and organisations. 

Lessem points to ELMO’s findings on burnout as a sign that the impact on employee wellbeing is already showing; according to its report, 42 per cent of employees experienced burnout in the last quarter. 

“It’s all coming to a head in terms of employee mental health,” he says. “Not taking leave really exacerbates the [burnout] issue. It’s not good for the mental health of employees to continuously work. There’s a good reason that all Australians have that legal entitlement to four weeks a year – it’s to keep us fresh and to keep us sane and balanced.”

As organisations continue to struggle with nationwide labour shortages, they might feel reluctant to encourage staff to take leave for fear that it will exacerbate their growing workloads or cause internal resourcing issues. However, this could lead to greater damage down the line.

“In the short term, employers might like employees to work longer and not take annual leave. But, from a financial point of view, it’s increasing the size of the entitlements on their balance sheet. So in the long term, it’s disadvantageous to their financial stability.”

Why are employees avoiding annual leave?

Among the reasons ELMO’s survey respondents gave for stockpiling leave, financial motivators were the most common, with 41 per cent of employees avoiding leave due to the rising cost of living or a desire to save more money. Meanwhile, 26 per cent say they are too busy with work to take leave.

The chart below details the other most commonly cited reasons for avoiding leave.

Older generations were more likely to avoid taking leave. On average, Baby Boomers and Gen X’ers have double or triple the amount of annual leave that Gen Zs and Millennials have accrued.

When it came to reasons for taking annual leave, being overwhelmed with work was the most popular reason for younger generations. Thirty two percent of Gen Z and 31 per cent of millennials cited being overworked as their main reason for taking leave, compared to 26 per cent of Gen X and 11 per cent of baby boomers.

However, younger generations were more likely to take other steps to cut costs, such as working from home to save on expenses like food and transport or seeking a pay rise.

“I think that the cost-of-living pressures are even more acute on young people,” says Lessem.

“For people who are a bit older, they’ve probably bought their property at a lower rate and paid down most of their mortgage. 

“For young people, they might have just bought a property, so they’re in a situation where they’ve got a lot more pressure. The cost of living pressures and the financial backdrop are putting more acute pressure on young Australian workers than their more established counterparts.”

Shifting priorities 

Cost-of-living pressures are not only deterring employees from taking time off, but also influencing where they choose to work.  

Sixty four per cent of surveyed employees said they worked from home to save money. A third (34 per cent) of employees working remotely even said a free breakfast or catered lunch would entice them back to the office. 

However, when respondents were asked what their top priorities were in a potential employer, remote or flexible work was a less popular choice than it was in the previous quarter.

“There’s a good reason that all Australians have that legal entitlement that the four weeks a year – it’s to keep us fresh, to keep us sane and balanced.” – Danny Lessem, co-founder and CEO of ELMO.

Remuneration was the top priority across the board for employees looking for a new job, and working flexibly or remotely went from second to third on the list. The second-highest priority is now the stability of an organisation.

“For most people, the big issues now are [things like], ‘Am I going to be able to pay my mortgage repayments in the new year?’ or ‘The price of food has gone up. Can we do the family barbecue on Saturday?’ These are big issues now, and they are reluctant to put the other factors above just meeting basic needs.

“I think when we do the [Employee Sentiment Index] next quarter, we’re going to see [pay] even more acutely as a big motivator of people’s behaviour.”

How should employers respond?

Encouraging employees to take a well-earned break is the first step towards addressing the issue, says Lessem. 

Whether employers can mandate annual leave is dependent on the individual employment contract, but employers should still think strategically about when and how they encourage staff to take leave. 

“Even though businesses are pressured with skills or talent shortages, employers should be encouraging people to take leave [at the right time]. If they don’t, we’re going to have a fallout in the first quarter of next year. 

“We’re going to get increased sick days, absenteeism and mental health issues. We really need to think long term and make sure we have a sustainable approach.”

While many organisations might not have the financial resources to give employees the pay rises that they want, there are plenty of other ways that employers can help to ease financial stress on their teams.

“I’m not suggesting that people get unrealistic pay rises, but in terms of assisting employees in dealing with the increased cost of living, just having some empathy in the workplace will assist people in getting through the tough times,” says Lessem.

“It’s about being more nurturing but also educational on the financial side. You can’t just offer up an EAP when people have broken down to try and fix them. Instead, try and assist them where there are financial risks and, perhaps, provide them with some financial education so they can deal with increased pressures.” 

Lessem points to organisations’ handling of COVID-19 pressures as an example of the kind of attention they should be giving to this issue.

“During [the pandemic], HR practitioners did really well in terms of looking after their people from a physical and mental health perspective. Now, the risks are financial. So, HR practitioners have to put the financial hat on and assist their employees through education.”

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