By David Bates

The Fair Work Commission has recently made a number of very important changes to annual leave entitlements for Modern Award-covered employees.

Employers should familiarise themselves with these changes because they may require existing workplace policies and procedures to be updated.

We’ve summarised just two of the changes for you below:

1. Cashing Out Annual Leave

For the very first time, all Award-covered employees can now cash-out a portion of their accrued annual leave. Each of the current 122 Awards has been updated to expressly allow cashing-out of annual leave, subject to four very strict rules:

  • employees can only cash out a maximum of two weeks’ annual leave every 12 months
  • an employee must always have a remaining balance of least 4 weeks after the cashing-out has been processed
  • each agreement to cash-out annual leave must be recorded in writing, and
  • the amount paid to the employee must be no less than the amount they would have received had the leave been taken

It’s also worth noting employees under 18 need their parent/guardian to sign the agreement, and employers remain strictly prohibited from coercing employees into cashing-out leave.

2. Excessive Annual Leave

Employers have long-struggled to manage excessive annual leave accruals. These latest changes mean ‘excessive’ annual leave accruals – defined as more than 8 weeks for most employees and 10 weeks for shift workers – can now be tackled head on.

Most – but not all – Modern Awards now contain a ‘model directed leave term’ which allows the employer to direct employees who take excessive annual leave. As with cashing-out of annual leave, strict rules apply:

  • The employee and employer must first meet to discuss arrangements for eliminating the excessive leave
  • If an agreement can’t be reached, the employer is entitled to direct the employee to take annual leave.
  • The directed annual leave period must begin between 8 weeks and 1 year from the date the direction is issued by the employer
  • The directed annual leave period must be at least one week long, and
  • The employee must have at least six weeks of annual leave left after the directed leave period has been completed

Three further important points should also be noted:

  • The employer’s direction cannot be inconsistent with any leave arrangements already in place. This includes any annual leave policies or procedures which apply in the workplace
  • An employee can still request annual leave despite an employer’s prior direction, and the employer must disregard the direction when considering the employee’s new request, and
  • If an employee has had an excessive leave balance for more than six months and the employer has not issued a direction, the employee can unilaterally take some of their leave. In this situation, the same rules as mentioned above for employer-directed leave will also apply.

Phew! While all this might seem quite complex, the good news is that these changes are a positive – but long-overdue –  step towards more flexible workplace regulation.