Annual Leave Changes on the Way

The Fair Work Commission has released a series of changes to annual leave following its four-yearly review of modern awards.  The decision covers several areas. 

Directing to employees to take paid annual leave

Under the new provisions, employers can direct employees who have accrued excessive annual leave, to take one week or more paid annual leave.  The remaining annual leave entitlement must be not less than six weeks.

Before issuing the direction, the employer must first arrange a meeting with the employee, with the aim of genuinely trying to agree on a plan to reduce or eliminate the excessive leave accrual. 

After the meeting, if the employer issues a leave direction to the employee, the employee may still make their own leave request as if the direction had not been given.  In this case, the employer must not take the direction into account when deciding whether to agree to the request, and must not unreasonably refuse. 

If the employer gives no direction following the meeting, then the employee may give the employer written notice of his or her intention to take the excessive leave.  Such inclusions in the new model term give the employee a certain degree of control over when they will take the leave.

Cashing out of annual leave

The FWC agreed to update all modern awards to include a new model term dealing with the cashing out of annual leave.  The new model term provides that an employer and employee can agree to cash out accrued paid leave.

Four safeguards have been incorporated into the provision, as follows:-

  1. Each cashing out must be by separate agreement in writing;
  2. The amount must be equal to the full amount the employee would have received as if he or she had taken the leave at the time it is cashed out;
  3. Leave must not be cashed out if it would result in the remaining annual leave entitlement being less than four weeks;
  4. The maximum amount that can be cashed out is two weeks’ worth of leave in any 12-month;
  5. An employer cannot place undue influence or pressure on an employee to cash out his or her leave entitlement nor can an employer knowingly mislead the employee about his or her rights under this new provision.

Taking annual leave in advance

The new changes allow an employer and employee to agree to paid leave in advance of the employee having actually accrued the leave entitlement.  The agreement must be put in writing.  Should the employment end before the employee has had the time to accrue the leave, the employer may deduct the balance owing from any monies due to the employee on termination.

When payment for annual leave should be made

Currently, 51 Awards require annual leave to be paid in advance when an employee takes annual leave. The FWC intends to vary these Awards to allow annual leave to be paid in the ordinary course of the pay cycle.  This brings all Awards in to line with normal payment arrangements. 

When do the changes commence?

The changes are mostly positive for employers but have not yet been incorporated into Awards.  The FWC is still going through some consulting processes and is currently seeking feedback on the proposed changes.

We will advise further when the changes have occurred but it appears likely that the changes will progress in the coming months as indicated.

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