Fair Work Commission Makes Changes to Annual Leave Provisions in Modern Awards

In July 2016, as a part of the four yearly review of modern awards, the Fair Work Commission (the Commission) introduced a number of new provisions in relation to annual leave across a majority of modern awards. These new provisions relate to taking annual leave in advance, excessive annual leave accruals, cashing out of annual leave. 

Annual leave in advance

The new provision enables an employer and employee to agree in writing to take a period of annual leave in advance of accrual. A pro-forma written agreement has been included as a schedule to the modern awards.  Importantly, an employer will now be able to deduct from the monies due to an employee upon termination the amount of advance leave which has not been accrued.

Excessive leave accruals

Under this provision, where an employee has accrued more than eight (8) weeks paid annual leave, an employer can direct an employee to take leave only if:

• the employer has genuinely tried to reach an agreement with the employee on how to reduce or eliminate the excessive leave accrual; 
• the employee will retain at least six weeks annual leave; 
• the period of leave to be taken is not less than one week;
• the leave must be taken not less than eight weeks and not more than 12 months after the direction is given; and 
• the direction is not inconsistent with any other leave arrangement between the employer and the employee. 

If the employer and employee have genuinely attempt to reach a agreement on the reduction or the elimination of the excessive leave accrual, but the employer fails to subsequently give a direction to take leave, the employee may initiate the process and request to take leave in such circumstances him or herself.  The same criteria as set out above must be met. However, the employee's excessive annual leave accrual must exist for more than 6 months. This provision came into operation on 29 July 2017. 

Cashing out of annual leave 

Employees and employers can now agree to cash out annual leave if the following conditions are met:

• A written agreement is made.
• The agreement specifies the amount of leave to be cashed out (e.g. 2 weeks), the $ payment to be made to the employee and the date on which the payment is to be made.
• The $ payment must at least equal the leave period being cashed out.  
• Following the payment, the employee must retain at least 4 weeks' leave.
• The maximum amount of accrued leave that may be cashed out in any 12 month period is two (2) weeks.
• The employer must keep a copy of the agreement as an employee record. 

The pro-forma agreement for cashing out annual leave is included as a schedule to the modern award.

What does this mean for employers?

These provisions give an employer greater flexibility in managing employees who have excessive annual leave and aim to reduce an employer's annual leave liability.  It is important for an employer to consider the modern award that applies to their business as the clauses in some awards are different.  These provisions only apply to award covered employees and provide a starting point for enterprise bargaining negotiations. If your business is covered by an enterprise agreement, the changes do not apply unless the enterprise agreement expressly incorporates the modern award into the enterprise agreement.

If you would like more information about the above or more about cashing out of annual leave or directing an employee to take annual leave, please contact National Workplace Lawyers on +61 2 9233 3989.

National Workplace Lawyers

Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.