Changes to Annual Leave

Stephen Booth

As part of its four-yearly review of modern awards, the Fair Work Commission has examined the issues of excessive annual leave and the cashing out of annual leave – both common issues for our employer clients.

Some employees are so committed to work that they take little leave (which is less than ideal for their ongoing wellbeing, and which results in ever-increasing provisions in the accounts as pay levels increase), or see the accrual as a cash nest egg payable on eventual termination, rather than an opportunity to take a break.

Proposed changes by the Fair Work Commission may make these issues easier to handle.

Excessive annual leave

The review noted that employees with excessive annual leave could have negative cash flow impacts on employers when it came to paying out annual leave if they left their job. The proposed changes will give more definition to an employer’s right to direct the employee to take leave.

The Fair Work Commission has proposed a new model term about excessive annual leave be included in 70 awards and, potentially, in all modern awards. This will allow employers to direct employees with excessive accrued annual leave (more than eight weeks for non-shift workers and 10 weeks for shift workers) to take leave, provided that:

  1. Before directing leave to be taken, the employer has requested a meeting with the employee and has genuinely tried to agree upon steps that will be taken to reduce or eliminate the employee’s excessive leave accrual without the need for a direction 
  2. the directed leave won’t result in the employee having less than six weeks accrued annual leave left 
  3. the directed leave is for at least a week 
  4. notice of at least eight weeks and not more than 12 months is provided to the employee of the directed leave 
  5. any existing agreed leave arrangement is taken into account (so if an employee with 12 weeks accrued already has a month’s leave booked, a direction won’t be appropriate).

Cashing out of annual leave

The Fair Work Act currently sets out that annual leave can’t be cashed out unless in accordance with provisions under an award or enterprise agreement. This means it’s generally illegal as most modern awards don’t provide for the cashing out of annual leave (except at the end of the employment).

The Commission has proposed a new model term about cashing out of annual leave which will allow an employer and employee to agree to the employee cashing out accrued annual leave if:

  1. Each cashing out of a particular amount is agreed by a separate written agreement 
  2. the employee is paid the full amount that would have been payable had the employee taken the leave at the time that it is cashed out 
  3. the cashing out won’t result in the employee’s remaining accrued entitlement being less than four weeks, and 
  4. the employee doesn’t cash out more than two weeks in any 12 month period.

Both these proposed changes are subject to more submissions and hearings, with a further hearing currently listed for 7 August, 2015. Given that the timetable for the four-yearly review goes up to December, these changes are unlikely to come into force until 2016.

Should you wish to find out more about how these changes will affect you, please contact our Employment Law Team:

Stephen Booth, Principal
Phone: 02 9895 9222

Lisa Qiu, Lawyer
Phone: 02 9895 9207