Unused Leave: Better Saved or Paid? A Sri Lankan Perspective on Employee Motivation

 

Unused Leave: Better Saved or Paid? 
A Sri Lankan Perspective on Employee Motivation

Introduction

In today’s busy work life, employee well-being is important. One area many companies overlook is how they manage annual leave. In Sri Lanka, organizations often face a choice: allow employees to carry forward unused leave or pay them for it. Both options seem good, but they affect employee motivation in separate ways.

Traditionally, paying employees for their unused leave (known as leave encashment) is viewed as a financial reward. In the current Sri Lankan economy, many workers prefer getting extra cash over taking time off.

This is linked to extrinsic motivation, where people are driven by money. Research suggests that financial incentives like this can boost motivation and performance, especially in smaller companies, making leave encashment a popular short term benefit.

"When viewed through the lens of Herzberg’s Two-Factor Theory, annual leave typically functions as a Hygiene Factor. Its presence doesn't necessarily inspire peak performance, but its absence or poor management creates deep dissatisfaction. However, when a policy allows for meaningful carry-forward, it transitions into a Motivator, offering employees autonomy and recognition of their personal lives, which fosters long-term organizational commitment."

 

However, this approach has a hidden downside. When employees avoid taking leave just to earn extra money, it can lead to burnout, stress, and reduced productivity over time. Research in human resource management shows that continuous work without proper rest negatively affects both mental health and job performance. In Sri Lanka, where work life balance is already a challenge in sectors like banking and telecom, this can become a significant issue.

On the other hand, allowing employees to carry forward leave encourages them to use it more flexibly. Employees may save leave for personal needs such as family commitments, travel, or emergencies. This supports intrinsic motivation, where employees feel valued and trusted by the organization. Studies over the past five years suggest that employees who are given flexibility in leave management report higher job satisfaction and stronger organizational commitment.

However, carry-forward policies also need proper limits. If employees keep accumulating leave without using it, the problem is still the same—fatigue and disengagement. Therefore, organizations must balance flexibility with encouragement to take time off.

In Sri Lanka, local culture often prevents people from taking time off. Many workers worry that taking leave makes them look less dedicated or adds to their heavy workload. Because of this, simply letting employees save leave for later is not a complete fix.

To improve this, managers and companies should take these steps:

  • Managers must encourage staff to take breaks without feeling guilty.
  • Companies can allow employees to save some leave days while paying them for others (encashment).
  • HR should focus on the mental and physical health of workers rather than just financial incentives.
  • Use programs to show the importance of a good work-life balance. 



Conclusion

While paying for unused leave may provide short-term motivation, allowing employees to carry forward leave when managed properly offers more sustainable benefits.

For Sri Lankan organizations aiming to improve both performance and employee satisfaction, the focus should shift from simply rewarding work to supporting well-being. After all, a well-rested employee is not only more productive but also more committed to the organization.


References

  • Herzberg, F., 6. Herzberg’s two-factor theory.
  • Nagandla, H. (2024) Assessing the influence of leave policies on employee performance, business profitability, and workforce stability. African Journal of Biomedical Research.
  • Peemanee, J. & Weerarathna, R. (2025) Beyond compensation: effect of employee benefits on motivation, performance, and turnover intention. Cogent Business & Management.
  • Srivastava, S. (2026) Leave carry-forward and encashment rules set for standardisation. People Matters.
  • Shilpakar, N., Giri, B. & Pokhrel, S.K. (2024) Flexible working arrangements and employee turnover intention. SAIM Journal of Social Science and Technology.
  • Yıldırım, G. & Aydemir-Karadag, A. (2021) Designing an annual leave scheduling policy. Journal of Industrial and Management Optimization.
  • Shop and Office Employees (Regulation of Employment and Remuneration) Act No. 19 of 1954.

Comments

  1. Saranga Wijesinghe20 April 2026 at 12:53

    Satheesh, this post offers a very practical look at the trade-off between financial incentives and work-life balance within the Sri Lankan context. While encashing leave provides immediate financial relief, especially during tough economic times, encouraging rest is often more effective for long-term motivation and preventing burnout. Striking the right balance between these two options is key to maintaining both a productive and a healthy workforce.

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:28

      Thank you very much for your valuable comment.
      I agree with your point. In Sri Lanka, cashing unused leave can help employees in difficult times, but taking proper rest is also very important to avoid stress and burnout.
      Finding a balance between financial support and employee well-being is the best way to keep both productivity and health in the long run.

      Delete
  2. Risna Nushrath20 April 2026 at 12:58

    This is a thoughtful analysis of how unused leave policies affect employee motivation in Sri Lanka. The practical recommendations like combining partial encashment with carry-forward and encouraging managers to normalize breaks make the discussion very actionable.

    How can Sri Lankan companies shift workplace culture so that employees feel comfortable taking leave without fearing it will harm their career progression?

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:31

      Thank you for your thoughtful comment.
      You’ve raised a very important point. To make employees feel safe to take leave, companies should:
      Encourage managers to lead by example
      Focus on results, not constant presence
      Treat leave as part of healthy productivity
      When leaders support this, employees will feel more comfortable using their leave.

      Delete
  3. Chandima Karunarathne20 April 2026 at 17:26

    This is a very strong and thoughtful discussion of annual leave management in the Sri Lankan context. You clearly compare leave encashment and carry-forward policies, and you do a good job linking them to motivation theory and real workplace behavior. The connection to burnout, work-life balance, and cultural attitudes toward taking leave makes your argument especially relevant and practical. The use of Herzberg’s Two-Factor Theory also strengthens the academic quality of your writing.

    If employees continue to prefer encashing leave due to financial pressure, how can organizations realistically encourage a healthier culture of taking leave without making employees feel financially disadvantaged?

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:38

      Thank you very much for your thoughtful comment.
      You’ve raised a very important point. To balance this, organizations can offer partial leave encashment while still encouraging employees to take proper rest. This way, employees get some financial benefit without losing the chance to recharge.

      Delete
  4. Nimesha Ekanayaka20 April 2026 at 19:00

    Leave isn't just time away from work.it's a recharge tool that moves from being a basic requirement to a powerful motivator when we give employees the flexibility to save and use it when they truly need it

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:37

      Thank you very much for your valuable insight.
      You’ve put it very well leave is not just time off, but a way for employees to recharge and stay motivated. Flexibility in using leave when needed is indeed very important.

      Delete
  5. Nathasha Jayamanna21 April 2026 at 01:25

    This was really relatable, especially because I have seen how many people prefer to get paid instead of actually using their leave. It makes sense given the situation in Sri Lanka right now, but at the same time it feels like people are just pushing themselves without proper rest. It also made me think that even if companies allow leave, do employees actually feel okay taking it, or do they feel worried and guilty?

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:35

      Thank you Nathasha,
      You’re right many employees prefer encashment due to financial needs, but it can reduce rest and increase stress. Also, workplace culture plays a big role in whether people feel comfortable taking leave.

      Delete
  6. Saranga Wijesinghe21 April 2026 at 05:42

    This comment has been removed by the author.

    ReplyDelete
  7. Nadun Heeraluarachchige21 April 2026 at 08:13

    Your post is a very balanced and well-explained discussion on an often overlooked HR issue in Sri Lanka. The comparison between leave encashment and carry-forward policies is clearly linked to both motivation and employee well-being, especially using Herzberg’s theory effectively. I also agree that without a supportive work culture, even flexible leave policies may not solve the problem of burnout.
    How can Sri Lankan organizations practically change workplace culture so employees feel comfortable taking leave without fear of being seen as less committed?

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:32

      Thank you very much for your valuable comment.
      You are right policy alone is not enough without a supportive culture.
      In Sri Lanka, this can improve when managers encourage leave, focus on results, and treat rest as part of good performance. This helps employees feel safe to take leave without fear.

      Delete
  8. Shewan Sundarampillai21 April 2026 at 08:40

    This is a very thoughtful blog. I like how you have balanced the discussion between leave encashment and carry forward, linking it to Herzberg’s Two Factor Theory and the realities of Sri Lankan work culture. The point about burnout and stress when employees avoid taking leave for financial gain is especially important, as it highlights the hidden cost of short term incentives. The practical suggestions such as encouraging managers to normalize breaks and combining both encashment with carry-forward make the analysis realistic and actionable. Overall, it’s a strong reminder that employee wellbeing must be treated as a strategic priority, not just a policy detail.

    ReplyDelete
    Replies
    1. Satheeshwaran Balasundaram21 April 2026 at 09:34

      Thank you very much for your thoughtful comment.
      I’m glad you found the discussion useful. In Sri Lanka, balancing leave encashment and carry-forward is important, but employee well-being should always come first. As you said, avoiding leave can lead to stress and burnout, so supporting a healthy work culture is key.

      Delete

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