Our business is covered by three different modern awards and we have heard about some recent changes regarding annual leave. What has changed?

In a major case which continued for over two years, Ai Group has been successful in convincing a Full Bench of the Fair Work Commission (FWC) to grant some important new rights for employers and important flexibilities for employers and employees.

As a consequence, the annual leave terms in most modern awards have been varied.

What has changed?

The award variations deal with:

1. The cashing out of a particular amount of annual leave by agreement between an employer and an employee;

2. Employer and employee rights regarding excessive leave accruals;

3. Payment for annual leave through electronic funds transfer (EFT) in accordance with the usual pay cycle;

4. The taking of annual leave in advance by agreement between the employer and the employee.

Not all of the awards that have been subject to variations contain the above changes. It is important to note that certain conditions, limitations and procedural requirements apply, as summarised below.

What awards have been varied?

Not all awards have been subject to the above variations. A list of the awards that have been varied, and what those variations are, can be found on the Fair Work Commission’s website.

The specific terms of each modern award should be referred to so that businesses are fully across the changes.

Excessive leave
Employers have been given enhanced rights to direct employees to whom an applicable award applies to take annual leave when an employee has an “excessive leave accrual”.

The model clause contains a number of relatively complex provisions:

1. An employee is defined as having an excessive leave accrual if the employee has accrued more than 8 weeks’ paid annual leave (or 10 weeks’ paid annual leave for certain shift workers).

2. If an employee has an excessive leave accrual, the employer or the employee may seek to confer with the other and genuinely try to reach agreement on how to reduce or eliminate the excessive leave accrual.

3. If an employer has genuinely tried to reach agreement with an employee but agreement is not reached, the employer may direct the employee in writing to take one or more periods of paid annual leave, provided that:

  • a direction by the employer is of no effect if it would result at any time in the employee’s remaining accrued entitlement to paid annual leave being less than 6 weeks when any other paid annual leave arrangements are taken into account;
  • the employer must not require the employee to take any period of paid annual leave of less than one week;
  • the employer must not require the employee to take a period of paid annual leave beginning less than 8 weeks, or more than
    12 months, after the direction is given;
  • a direction by the employer must not be inconsistent with any leave arrangement agreed by the employer and employee; and
  • an employee to whom a direction has been given may request to take a period of paid annual leave as if the direction had not been given.

4. If an employee has genuinely tried to reach agreement with an employer (as referred to above), the employee may give a written notice to the employer requesting to take one or more periods of paid annual leave, provided that:

  • this employee right does not come into operation until 12 months after the abovementioned employer rights come into operation;
  • the employee must have had an excessive leave accrual for more than 6 months at the time of giving the notice;
  • the employee must not have been given a direction by the employer (in accordance with the process in Point 3 above) that would eliminate the employee’s excessive leave accrual;
  • the notice by the employee must not, if granted, result in the employee’s remaining accrued entitlement to paid annual leave being at any time less than 6 weeks when any other paid annual leave arrangements are taken into account;
  • the notice by the employee must not provide for the employee to take any period of paid annual leave of less than one week;
  • the notice by the employee must not provide for the employee to take a period of paid annual leave beginning less than 8 weeks, or more than 12 months, after the notice is given;
  • the notice by the employee must not be inconsistent with any leave arrangement agreed by the employer and employee;
  • an employee is not entitled to request by notice more than 4 weeks’ paid annual leave (or 5 weeks’ paid annual leave for certain shift workers) in any period of 12 months; and
  • an employer must grant leave in accordance with a notice given by an employee in accordance with these provisions.

Cashing out of annual leave

Employees to whom an applicable award applies will be able to cash out accrued annual leave in excess of four weeks’ accrued leave, by agreement with their employer and subject to various safeguards, including:

  • an agreement must not result in the employee’s remaining accrued entitlement to paid annual leave being less than 4 weeks;
  • the maximum amount of accrued paid annual leave that may be cashed out in any period of 12 months is 2 weeks;
  • each cashing out of a particular amount of paid annual leave must be the subject of a separate written agreement;
  • the agreement in writing must state: o the amount of leave to be cashed out and the payment to be made to the employee for it; and o the date on which the payment is to be made;
  • the agreement must be signed by the employer and employee and, if the employee is under 18 years of age, by the employee’s parent or guardian;
  • the payment must not be less than the amount that would have been payable had the employee taken the leave at the time the payment is made; and
  • the employer must keep a copy of any written agreement to cash out as an employee record.

The FWC’s decision relates only to employees to whom an applicable award applies. Cashing out of annual leave for employees covered by an enterprise agreement under the Fair Work Act is available only if the agreement provides for such cashing-out and the safeguards in section 93 of the Act apply.

Award-free and agreement-free employees are able to cash out annual leave in excess of four weeks’ accrued leave, by agreement with their employer and subject to the conditions in section 94 of the Fair Work Act.

Granting annual leave in advance

A new clause has been inserted enabling an employer and employee to agree in writing to the employee taking a period of annual leave in advance of the leave accruing. The agreement in writing must:

  • state the amount of leave to be taken in advance and the date on which the leave is to commence; and
  • be signed by the employer and employee and, if the employee is under 18 years of age, by the employee’s parent or guardian.

The employer must keep a copy of any agreement as an employee record.

If, on the termination of the employee’s employment, the employee has not accrued an entitlement to all of a period of paid annual leave already taken in accordance with an agreement reached under the relevant clause, the employer may deduct the relevant amount from any money due to the employee on termination.

Payment of annual leave as part of the normal pay cycle

Despite the fact that it is very common for employees to be paid for their annual leave in accordance with the normal pay cycle, some awards still require that annual leave be paid in advance of the commencement of annual leave.

A new clause proposed by Ai Group has been inserted into the applicable awardsenabling an employer to pay an employee paid by electronic funds transfer (EFT) to be paid in accordance with their usual pay cycle while on paid annual leave.

When do the variations apply from?

The variations relating to the cashing out of annual leave, giving employer's rights to direct an employee withexcessive annual leave to take annual leave and the payment of annual leave via EFT come into operation from the first full pay period that starts on or after 29 July 2016.

However, the clause that gives an employee a limited right to give notice to an employer of the taking of excessive leave operates from the first full pay period that starts on or after 29 July 2017.

Further information

Please call the Workplace Advice Line on 1300 55 66 77 for further information about the above variations or annual leaveunder any award or industrial instrument.

Clinton Fraser

Clinton is the Publications Manager at Ai Group. He is responsible for a number of key services including Annotated Modern Awards, Workplace Relations Handbooks and the management of Ai Group’s HR and Health & Safety Resource Centres. Clinton has a Masters in Employment Relations and previously held advisory roles with the Workplace Authority and Fair Work Ombudsman.