Employment Law Update - Annual Leave Changes from August 2016
June 2016 | News | Peter Wilson
Most employees in Australia are covered by the Fair Work Act (FWA) provisions which regulates annual leave for Award and non-Award employees.
The Fair Work Commission (FWC) is currently reviewing all of its modern Awards. As part of this review, the FWC recently decided that the rules for managing annual leave will change for all Award covered employees.
The changes to Award annual leave rules are in four areas, as set out below. Some of these changes will commence from August 2016.
1. Taking Excess Annual Leave
Employers do not have a statutory right to direct Award-covered employees to take excess annual leave. The FWA states that the time when annual leave is to be taken may be agreed by employer and employee, and an employer must not unreasonably refuse an employee’s request to take leave.
However, some modern Awards (e.g. The Clerks Award) currently allow employers to direct employees to take leave when operations close down (such as a Christmas closedown) or where an employee has more than eight (8) weeks annual leave accrued.
These Award clauses will change to a new format and most awards will give employers a new right to direct employees to take excess annual leave.
The new Award rules for employers that want to direct employees to take excess annual leave (directed leave) are:
- Where an employee has more than two (2) years’ annual leave accrued the employer must first meet with the employee to attempt to agree on ways to reduce the excess accrual
- If agreement cannot be reached the employer can give the employee a written direction
- The employee must have at least six (6) weeks annual leave left after the taking of the directed leave
- Directed leave must be of at least one (1) week in duration
- The employee is not required to take directed leave within eight (8) weeks from the date of the direction, but must take it within 12 months.
- The direction cannot be inconsistent with leave arrangements already in place (e.g. agreed leave periods or a policy/contract regulating taking of leave)
The FWC rejected a claim to extend to all awards the ability for an employer to direct employees to take annual leave when their operations closedown. Therefore annual leave closedown provisions will continue in some Awards and not be part of other Awards, as is currently the case.
Non-Award employees remain covered by section 94 of the FWA. This states that an employer can require an award/agreement-free employee to take a period of paid annual leave, but only if the requirement is reasonable. Also an employer and employee can agree on when and how much annual leave may be taken. Therefore employment contracts for Award-free employees can set out rules for taking annual leave, including taking excess annual leave.
As most employers have a mix of Award (e.g. clerks, secretaries) and non-Award employees, employers should consider whether they want (or need) to change their annual leave policies and employment contracts. Employers may also want to consider whether it is desirable and possible to move all staff onto similar annual leave rules
2. Cashing out Annual Leave
Some Awards currently allow the cashing out of excess annual leave. From August 2016 there is a new model clause applying this to most modern Awards. This will include a template agreement that employers can elect to use.
An agreement to cash out annual leave for Award covered employees will be subject to the following conditions:
- The agreement must be in writing signed by employee and employer, and retained as an employment record
- The written agreement must specify the amount of leave to be cashed out, the payment to be made, and the date on which the payment will be made
- The employee must retain four weeks accrued annual leave after the agreed leave has been cashed out.
- No more than two weeks annual leave may be cashed out in any 12 month period.
- The employer must keep a copy of the agreement as an employee record.
Non-Award employees remain regulated by section 94 of the FWA. This requires an agreement to cash out annual leave be in writing, and the employee must retain four weeks accrued leave immediately after the cashing out.
As most employers engage a mix of Award and non-Award employees, employers could use the Award change as a catalyst to review their annual leave policy. We note that the two week maximum payout restriction does not apply to non-Award employees.
3. Taking Annual Leave in advance
Some Awards currently allow annual leave to be granted in advance of it being accrued and regulate how any negative leave entitlements are to be dealt with on cessation of employment. A clause enabling agreement on the taking of annual leave in advance is now going to be a standard clause in modern Awards and will include a template agreement that employers can elect to use. Also employers will now be able to lawfully deduct any remaining “advance” from termination payments.
Non-Award employees remain covered by section 94 (6) of the FWA and can agree with their employer on how annual leave is taken. Therefore the terms of employment contracts can regulate this.
Employers may want to review their annual leave policies and employment contracts to comply with the new rules and so that, where possible, all staff are covered by similar annual leave rules.
4. Payment of annual leave and EFT
Some Awards currently require annual leave to be paid in full before leave commences. In future some of these Awards will allow payment of annual leave in line with the employer’s normal pay cycle.
Affected employers may want to review their current annual leave policy and payroll practices to reduce complexity and pay annual leave in line with their normal pay cycles.