Did you know that annual leave loading on accrued annual leave balances must be paid out when employment ends?
Prior to the Fair Work Act, many employers just said to their employees 'since we pay above award wages we don't pay annual leave loading'. This approach is no longer possible.
All Award covered employees must be paid annual leave loading unless a set-off clause in their employment contract or an Individual Flexibility Agreement operates so that over-award earnings are set-off against the specific requirement in the Award. Be sure to check with us that your agreements are worded correctly.
If your employee's Modern Award provides for leave loading on accrued annual leave, and you have no set-off clause, then you must pay leave loading when annual leave is taken as well as on accrued annual leave paid on termination or resignation. This aspect of annual leave loading is less known.
The Fair Work Ombudsman (FWO) has said that if an employee is entitled to annual leave loading then it must be paid out when their employment ends. This applies even if a clause in a modern award, agreement or contract expressly states otherwise, as the ruling has come from the NES.
To add further burden to employers, the FWO has indicated that employers should pay out leave loading retrospectively to 1 January 2010.
So, what steps should you take right now?
- Ensure that you include leave loading when calculating termination payments for those employees who are eligible to receive annual leave loading;
- Check the wording in your employee's contracts relating to annual leave loading;
- Be prepared for any ex-employees who left your business from 1 January 2010 to claim this as unpaid entitlements.