Cashing out of annual leave now a minimum entitlement for most Australians

WHO SHOULD READ THIS

• All employers covered by a modern award

THINGS YOU NEED TO KNOW

• Most employees are now entitled to cash out two weeks of annual leave every 12 months and take annual leave in advance before the employee has accrued the entitlement.
• The changes take effect from the first pay cycle after 29 July 2016.

WHAT YOU NEED TO DO

• If a modern award applies to your employees, review the new award terms and update any annual leave policies or procedures of the employer.
• If an enterprise agreement applies to your employees, seek advice regarding how the new modern award terms may apply to the employer and the employees.

As part of the four year modern award review, the Fair Work Commission (FWC) has now issued its decision in relation to model terms for cashing out of annual leave, taking leave in advance, annual leave payments, and excessive leave for most modern awards.

Background

Over the last three months, the FWC has been specifically considering paid annual leave in the context of the ongoing modern award review. The FWC has now determined to vary 112 of the 122 awards to allow for cashing out of annual leave and taking leave in advance. Further, 90 of the 122 modern awards will now deal with excessive leave. Of the modern awards, 50 will provide for EFT payments of paid annual leave. See a link to the list of affected awards at the end of this article.

When do the new terms take effect?

The new terms are relevant for any employees who are covered by a modern award.

The new terms will take effect from the start of the first pay period on or after 29 July 2016.

Cashing out

Employees now have an entitlement to cash out accrued annual leave where:

• there is an agreement in writing between the employee and the employer
• the payment does not result in an employee’s remaining leave balance being less than four weeks, and
• the maximum amount of leave that may be cashed out in any 12 month period is two weeks.

Taking leave in advance

Employees now have an entitlement to request a period of annual leave in advance before the employee has an accrued entitlement to that leave.

There must be agreement in writing between the employee and the employer for leave taken in advance, and the agreement kept as an employee record.

If, on termination of employment, the employee has not accrued an entitlement to all of a period of paid annual leave taken in advance, the employer may deduct a corresponding equal amount from monies due to the employee upon termination.

Requiring an employee to take excessive annual leave

Employers will be able to request employees take annual leave where employees have excessive accruals.

An employee will have ‘excessive leave’ if they have accrued more than eight weeks’ paid annual leave (or 10 weeks’ paid annual leave for a shift worker). Parties will be required to first try to reach genuine agreement on how to reduce or eliminate an excessive leave balance. Where an agreement is not reached, an employee can be directed to take annual leave as long as the:

• employee’s remaining leave balance is not less than six weeks
• employee takes a period of paid leave of at least one week, and
• leave is taken at least eight weeks after the direction is given.

What do the new annual leave terms mean for your business?

It is an offence to contravene a term of a modern award under the Fair Work Act 2009 (Cth). It is therefore important for you to examine the new annual leave terms and the varied modern awards that apply to your employees, and apply these terms going forward. You should also give consideration to any existing annual leave policies and procedures and ensure these are updated so that they are consistent with the new terms.

If an enterprise agreement applies to your employees (who are also covered by a modern award), do not simply assume that the terms of the enterprise agreement will continue to apply regarding annual leave matters. You should seek advice as to how the enterprise agreement and a relevant award will operate together.

Existing National Employment Standards entitlements for non-award covered employees regarding cashing out of annual leave and other leave matters have not changed.

The FWC will have further conferences and hearings on annual leave payment matters for the last few awards in September and October 2016. For a full list of the affected modern awards click on the link: https://www.fwc.gov.au/documents/sites/awardsmodernfouryr/schedule-final-determinations-july-2016.pdf

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.