71. Leave & Holiday Pay Disputes - Resolve & Prevent Conflicts
Handle Payroll Issues Fairly to Avoid Workplace Tension.
Imagine this - An employee returns from annual leave expecting full pay, only to find a deduction on their payslip. Meanwhile, another worker requests sick leave but is denied pay, claiming they are entitled to it. Elsewhere, an employee accuses management of withholding legally mandated holiday pay. Over time, you notice -
Employees becoming frustrated and disengaged over perceived payroll unfairness.
Frequent disputes about leave entitlements, leading to HR workload spikes.
Legal complaints filed with employment regulators over unpaid leave.
A damaged company reputation as workplace fairness comes into question.
Unpaid leave and holiday pay disputes often arise due to misunderstandings, payroll errors, or non-compliance with labour laws. Even if a company intends to follow the law, inconsistencies in leave tracking or policy application can cause employee distrust.
HR psychology tells us that employees who believe they are being denied rightful benefits are more likely to escalate disputes to external authorities or social media. However, when businesses proactively communicate policies and handle disputes fairly, trust and compliance improve.
The challenge? How do you manage unpaid leave and holiday pay disputes fairly while ensuring compliance and maintaining employee satisfaction?
The Solution – A Three-Part Approach - Verify, Communicate, and Prevent
Effectively managing leave and holiday pay disputes requires clear payroll records, open dialogue, and proactive policy enforcement. Here’s how to resolve conflicts while ensuring legal and ethical compliance.
1. Verify the Legitimacy of the Leave or Holiday Pay Dispute
Since pay disputes often stem from miscommunication or payroll errors, a thorough investigation is necessary.
A. Identify the Type of Leave or Pay Dispute
Unpaid leave disputes – Employee claims they were entitled to paid leave but weren’t compensated.
Holiday pay disputes – Employee believes they should have received additional pay for public holidays.
Misclassified leave types – Employee’s sick leave or personal leave was incorrectly deducted as unpaid leave.
Red Flag - If multiple employees report similar pay issues, there may be a broader payroll compliance problem.
B. Cross-Check Payroll and Leave Records
Review employment contracts to confirm leave entitlements.
Check timekeeping systems for recorded leave requests and approvals.
Compare payroll calculations against company policies and labour laws.
HR Psychology Insight - Employees feel more confident in payroll accuracy when they see clear records and transparent calculations.
C. Meet With the Employee to Clarify Their Claim
Allow the employee to present their payslips, contracts, or leave approvals.
Explain how their pay was calculated and whether any payroll mistakes were made.
Acknowledge any errors and commit to rectifying them promptly.
Red Flag - If an employee struggles to understand their pay structure, payroll policies may need clearer communication.
2. Communicate Openly and Resolve Disputes Fairly
Once the dispute is investigated, a structured response is necessary to restore trust and ensure fair treatment.
A. Address the Employee’s Concerns Professionally
If payroll errors are found, correct them immediately and issue back pay.
If the company’s policy was correctly applied, explain the reasoning clearly.
Offer employees a chance to ask questions and understand their entitlements.
HR Best Practice - Employees who feel their concerns are heard and addressed fairly are less likely to escalate disputes externally.
B. Ensure Compliance with Local Leave and Holiday Pay Laws
Verify whether holiday pay or leave pay is legally required in your jurisdiction.
Ensure company leave policies align with employment laws.
If required by law, provide premium pay for work done on public holidays.
Red Flag - If a company fails to meet legal requirements for leave and holiday pay, it may face lawsuits, fines, or reputational damage.
C. Offer Flexible Resolutions Where Possible
If legal leave entitlements are unclear, offer discretionary leave pay as a goodwill gesture.
Provide options such as additional paid time off to compensate for payroll mistakes.
Encourage employees to discuss future leave expectations openly.
HR Psychology Insight - Employees who feel valued through fair leave policies are more engaged and less likely to take unnecessary sick leave.
3. Prevent Future Leave and Holiday Pay Disputes with Strong Policies
To maintain long-term payroll accuracy and fairness, companies must strengthen policies and educate employees.
A. Standardise Payroll and Leave-Tracking Systems
Implement digital time-tracking software to avoid disputes over worked hours.
Automate holiday pay calculations to minimise human error.
Regularly audit payroll for compliance with leave policies.
Red Flag - If leave is tracked manually or inconsistently, payroll errors are more likely.
B. Educate Employees on Their Leave and Pay Entitlements
Hold onboarding sessions explaining how leave and holiday pay work.
Provide employees with written policies on leave rights.
Encourage employees to check their payslips and report discrepancies.
HR Best Practice - Employees who understand their entitlements are less likely to misunderstand pay calculations.
C. Maintain Open Dialogue on Leave Policies
Encourage managers to discuss leave entitlements with employees before approving time off.
Offer an internal appeal process for employees to dispute payroll decisions.
Periodically update policies to reflect changes in labour laws.
Red Flag - If employees fear retaliation for questioning leave pay, workplace trust is at risk.
Reflective Scenario – What Would You Do?
An employee claims they were supposed to receive paid leave over a public holiday, but their pay check reflects unpaid leave instead. They threaten to take the complaint to labour authorities if not resolved.
Using the strategies above, you might -
Review the employee’s contract and payroll records to verify entitlements.
Meet with the employee to explain pay calculations and correct any errors.
Ensure compliance with holiday pay laws to prevent further disputes.
Implement payroll system improvements to minimise future errors.
By handling leave and holiday pay disputes with fairness, transparency, and legal compliance, businesses can maintain employee trust and avoid costly legal challenges.
Golden Nugget - "Fair and transparent leave policies don’t just prevent disputes—they strengthen trust, engagement, and long-term employee retention."
By verifying payroll accuracy, addressing concerns transparently, and educating employees on their rights, SME leaders can create a workplace where employees feel valued, fairly compensated, and committed to company success.