Annual leave is an important part of employee entitlements. Also known as holiday pay, it allows an employee to be paid while having time off from work. Full time employees will accrue four weeks (20 days) of annual leave per year, while part time employees will accrue a pro-rata amount. Annual leave accrues progressively from year to year according to the employee’s ordinary hours of work and accumulates from year to year.
Only those employees engaged on a full time or part time basis are entitled to paid annual leave. If a casual employee requests time off for a holiday, you may wish to grant them unpaid leave or simply make a note that they will not be available to work during this period of time.
Can I ‘cash out’ annual leave?
The Fair Work Act expressly provides that paid annual leave must not be cashed out except in accordance with a modern Award or enterprise agreement.
As part of the four yearly modern Award review process, the full bench of the Fair Work Commission announced that a clause would be inserted in all 122 modern Awards providing employees with the right to cash in a maximum of two weeks annual leave in any 12 month period, provided that the employee retains an accrued annual leave balance of at least four weeks.
Consultation in relation to these proposed changes is ongoing and we expect a final decision to be handed down shortly.
Do I have to pay a ‘leave loading’?
The ARA Employment Relations Team is often asked about annual leave loading. Employers need to be certain they understand their annual leave loading obligations, both during employment and on cessation of employment.
Employees covered by the General Retail Industry Award are entitled to an annual leave loading of either 17.5 percent or the relevant weekend penalty rate, whichever is greater, but not both. In order to determine which is greater, you must consider the period of annual leave as a block.
Example 1: Jono usually works eight hours on Friday but takes annual leave. As no weekend penalty rates are applicable during this block of leave, he will be paid loading of 17.5 percent on top of his ordinary base rate of pay.
Example 2: Part-timer Alex usually works eight hours on a Friday, Saturday and Sunday. She takes these three days off on annual leave. Her employer first calculates her ordinary base rate (not including penalties) for the Friday, Saturday and Sunday, and then adds 17.5 percent annual leave loading on this amount. Her employer then works out the sum of Alex’s ordinary base rate on Friday, Saturday rate (including the 25 percent Saturday penalty), and the Sunday rate (including the double time Sunday penalty). After doing the maths, Alex is better off receiving her ordinary base rate for Friday, and the weekend penalties that apply for Saturday and Sunday, instead of a flat 17.5 percent loading on all three days. ARA Members should note that Alex does not receive the 17.5 percent on her Friday, as this would be seen as ‘double dipping’.
Do I have to pay leave loading on termination?
ARA Members are reminded that annual leave loading is payable on termination as well if the relevant modern Award does not expressly prohibit it. For example, retailers covered under the General Retail Industry Award should be aware that annual leave loading is payable upon termination.
Members engaging employees under different Awards should note that while the Fair Work Amendment Bill 2014 was passed late last year, the rules regarding annual leave loading on termination did not pass. This means that if the relevant modern Award does not expressly state that annual leave loading is not payable on termination, then your employees should be paid out any outstanding annual leave balances, plus the applicable loading on termination. This is applied regardless of whether your employee resigned or whether you terminated their employment.