The Fair Work Commission has announced important changes to the rules about taking paid annual leave. The changes relate to cashing out of annual leave, taking annual leave in advance and managing ‘excessive’ annual leave balances.
Cashing out of annual leave
Some employees can now ‘cash out’ up to two weeks of annual leave in any 12 month period. To do this, employees must have a signed written agreement with their employer and must have at least four weeks of annual leave left after the cash out takes effect.
The agreement to cash out annual leave must include the following:
- the amount of leave to be cashed out;
- the payment that will be made to the employee; and
- the date on which the payment will be made.
The agreement must be signed by you and the employee, as well as the employee’s parent or guardian if he or she is under 18 years of age. This agreement constitutes an employee record. You must therefore keep a copy of this agreement for a period of at least 7 years.
Taking annual leave in advance
Most employees can now take a period of annual leave in advance; providing that the employer agrees to this in writing.
The agreement to take annual leave in advance must state the amount of leave that will be taken and the date that the leave is to commence.
The agreement must be signed by you and the employee, as well as the employee’s parent or guardian if he or she is under 18 years of age. Again, this agreement constitutes an employee record and therefore must be kept on file for a period of at least seven years.
If the employee has not accrued an entitlement to the period of annual leave that was taken in advance on termination, the employer may deduct an amount equal to that amount paid to the employee in respect of the period of annual leave that was taken in advance but not accrued on termination.
Managing ‘excessive’ annual leave balances
An ‘excessive’ annual leave balance is where an employee has accumulated at least eight weeks of paid annual leave.
If an employee has an excessive annual leave balance, you and the employee should first try to genuinely reach an agreement on how to reduce the employee’s leave balance. If an agreement cannot be reached, you may direct the employee to take a period of annual leave.
A direction to take a period of annual leave must be given in writing. The direction cannot be given less than eight weeks (and not more than 12 months) before the period of annual leave is due to commence. The direction cannot require the employee to take a period of paid annual leave of less than one week and cannot result in the employee being left with less than 6 weeks of accrued paid annual leave.
An employee who has had an excessive annual leave balance for more than six months can now give his or her employer written notice that they will be taking a period of annual leave, however, an employee who has been given a written direction by their employer to take a period of paid annual leave cannot make such a request.
Who do they apply to?
The changes apply to most employees who are covered by a modern Award, including the following Awards relevant to ARA members:
- General Retail Industry Award 2010;
- Fast Food Industry Award 2010;
- Restaurant Industry Award 2010;
- Clerks – Private Sector Award 2010;
- Storage Services and Wholesale Award 2010
In addition to the above changes, the Storage Services and Wholesale Award 2010 contains a further amendment concerning the payment of annual leave entitlements. Under that Award, the employer must now pay annual leave entitlements (including leave loading) before the commencement of the employee’ annual leave, unless the employee is paid by electronic funds transfer (EFT).
An employee who is paid by EFT may be paid annual leave entitlements in accordance with their ordinary pay cycle.
When do they come into effect?
Most of the changes concerning paid annual leave are now in effect, having commenced from the first full pay period on or after 29 July 2016.
Changes allowing those employees who have had an excessive annual leave balance for more than six months to tell their employer that they will be taking a period of annual leave will take effect from 29 July 2017.
For more information regarding annual leave entitlements please contact the ARA Employment Relations Team on 1300 368 041.
