Changes to annual leave provisions now in play

In an important decision by the Fair Work Commission, annual leave provisions in modern awards have been varied to provide greater administrative flexibility. The changes apply from the first pay period on or after 29 July 2016.

The decision affects both the Real Estate Industry and the Clerks – Private Sector awards.

If you have an employee engaged under a different award or you are unsure of an employee’s award status, please call us to discuss on 02 9261 2666 or 1300 616 170.

Please note: the decision does not affect the central elements of annual leave concerning the quantum and accrual of leave, but rather alters certain administrative elements of the entitlement.

The following is a summary of the changes from the Fair Work Commission decision.

  1. Cashing out of leave

‘Cashing out’ annual leave means an employee receives payment instead of taking time off work.

Employees are now permitted to ‘cash out’ a limited amount of accrued annual leave. The rules however require:

  • that not less than four (4) weeks leave remains after the cashing out;
  • there is a signed written agreement between the employer and the employee;
  • no more than two (2) weeks annual leave is ‘cashed out’ each 12 months.

This decision is limited to the ‘cashing out’ of annual leave only. It does not apply to any other type of leave such as long service leave or personal carers leave.

Employers should be aware that they should seek advice from their accountant in relation to the appropriate PAYG tax to deduct from any amount of annual leave ‘cashed out’.

  1. Taking annual leave in advance

Employees are allowed to request and if approved by the employer, take annual leave in advance; i.e. before the entitlement to take leave has accrued.

Provided that:

  • the employer and employee agree in writing to the taking of the leave. Employers should note that there is no obligation to grant the requaest by the employee for leave in advance;
  • the agreement is signed by both the employer and the employee;
  • the agreement states how much leave is being taken in advance;
  • the agreement states the day upon which the leave will start.
  1. Managing excessive leave balances

This has long been a problem for employers in our industry. For a variety of reasons, employees seem reluctant to take their entire annual leave entitlements. This unfortunately results in employees accruing quite significant amounts of annual leave which, in turn, has a tendency to cause a serious liability on the balance sheet of the business.

The rules now allow for a mechanism for reducing an employee’s “excessive” annual leave balance. An excessive annual leave balance is when the employee has accumulated at least 8 weeks of leave. The new rules will allow for excessive annual leave to be reduced in one of two ways. These are either:

(i) Direction by the employer

If the employer and employee cannot agree on how to reduce or eliminate excessive annual leave, the employer can direct the employee in writing to take an amount of annual leave. However, this direction is subject to the following limitations:

  • the employee must be left with an annual leave balance of not less than six (6) weeks;
  • the leave directed to be taken must be not less than one (1) week;
  • the direction must give the employee at least eight (8) weeks’ notice of commencing the leave.

(ii) Notice by the employee

From July 2017, employees will be provided with the opportunity to tell their employer they will take a period of leave. The same provisions will apply as outlined in (i) above.

Until July 2017, employees who have large amounts of accrued annual leave should follow the normal process for requesting annual leave.

Sample agreements associated with this decision

Members will have noted that both granting leave in advance and ‘cashing out’ of leave requires agreement between the employer and the employee. The Fair Work Commission has prepared a template document to be completed and signed by both parties to reflect the agreement.

You will find a copy of these template documents on REEF’s People management System under the record keeping tab.

These changes are far from perfect for employers due to the regrettable administrative restrictions. They do provide however, a modest improvement on current annual leave arrangements.