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IMPORTANT CHANGES TO ANNUAL LEAVE (Last Updated On: June 16, 2015)

An important decision has been issued by the Fair Work Commission (the Commission) which will amend all modern awards to allow employees to cash out annual leave. The Commission also indicated that it believes all employers should be able to direct employees to take annual leave if they have excessive leave accrued (but this is subject to further debate).

The decision has been criticised by unions, but is welcomed by employers (and many employees) because it will provide greater flexibility when dealing with annual leave. Business owners can reduce their leave liability (often representing a significant liability on their books) and employees can increase their cash flow by cashing out annual leave that they do not wish to take.


What has changed?

Cashing out of annual leave

An employer and employee can agree to cash out some of the employee’s accrued annual leave if the employee does not wish to take it, subject to a number of safeguards.

 – Employees can cash out a maximum of two weeks of annual leave a year, but must be left with at least four weeks of accrued annual leave.

 – Employees must be paid the full amount they would have received if they had actually taken the leave.

 – Employers do not have to agree to cash out annual leave, but they cannot force or pressure an employee to cash out their leave or misrepresent their rights in relation to this.

Annual leave in advance

Annual leave accrues on a daily basis. Requests to take annual leave in advance of accrual are commonplace, but only 76 modern awards currently allow employers to agree that employees can take leave in advance.

The Commission accepted that a provision should be inserted into another 48 awards which would allow employers to provide annual leave in advance and to deduct monies for any leave taken but not accrued from final pay on termination.

The Commission also went on to suggest that all modern awards should allow annual leave to be taken in advance, but it will hear further comments on this before making a final decision.

Removal of requirement to pay leave in advance

51 modern awards currently require employers to pay an employee annual leave prior to taking the leave. These provisions will be amended so that employers who pay by EFT (electronic funds transfer) can pay leave in accordance with their usual pay cycle.


What should I do?

We are waiting for the Commission to issue determinations which will actually amend the terms of the modern awards in line with this decision. We will let you know when these changes take effect.

Once the changes have come into force, please call us on 1300 651 415 if you would like to allow an employee to cash out annual leave or take leave in advance. Any agreement must be recorded in writing, signed and contain prescribed information. We will be able to prepare the agreement for you and provide you with further advice.

As always, we are on hand to help you in relation to any enquiries you have about the modern awards which apply to your business and employees.


What is still up for debate?

There are a number of important matters still up for debate, including the issue of excessive leave. Further information on these are set out below. We will keep you up to date on these matters as they unfold.


 – Excessive leave: the Commission agreed that all modern awards should allow employers to direct that employees take annual leave if they have excessive leave accrued. Excessive leave being defined as eight weeks of leave (or ten weeks of leave for shiftworkers). The Commission’s decision was based on evidence that not taking leave posed a serious risk to health and safety and excessive annual leave was a significant financial burden for employers. The Commission has release a draft proposal on this for further comment, which would require employers to consult with their employees and try to reach agreement on how to reduce their leave, before directing them to take the leave.

– Purchased leave: the Commission will be producing a discussion paper on a proposal to allow employees to purchase additional annual leave (ie waive payment for time worked in exchange for a corresponding amount of annual leave).

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