Two recent decisions of the Fair Work Commission (FWC) confirm that an employer cannot meet statutory obligations to pay permanent employees for personal or annual leave by loading that payment in to their salary.
In BM & KA Group ([2013] FWC 3654) an employer applied to approve an enterprise agreement containing a term that sought to pre-pay annual leave and personal leave by means of a loaded wage rate.
The FWC noted that the National Employment Standard (NES) in the Fair Work Act 2009 (Cth) (FW Act) provides for employees an entitlement to paid annual leave and personal/carer's leave. Therefore the proposed agreement, by only providing for unpaid annual leave and unpaid personal/carer's leave, excluded the NES entitlement to paid annual leave and paid personal/carer's leave, in contravention of s 55 of the FW Act. In making this finding the FWC expressly declined to follow an earlier Full Bench decision in Hull-Moody Finishes Pty Ltd ([2011] FWAFB 6709), which ruled that an enterprise agreement could provide for the entitlement for leave payments by means of a loaded-up wage rate.
Eight days later the FWC ruled on a similar clause and also rejected it for slightly different reasons (Fortress Systems Pty Ltd [2013] FWC 3789). The FWC stated with reference to the NES provision granting an entitlement to paid annual leave:
"...the term paid annual leave is a composite term and thus the entitlement provided for in s.87 is not unpaid annual leave and separately an entitlement to payment which may be at any time. Rather the entitlement provided by s.87 is to have annual leave which is paid for at the time. The payment and the annual leave going hand in hand with each other."
It is clear that if an employee takes NES paid leave, there is an obligation on the employer to pay the employee at the appropriate rate at the time leave is taken.
The FWC also made it clear that if an employer does seek to pre-pay or make a payment in advance for annual leave or personal/carer's leave then it will in fact be seeking to "cash out" those entitlements. If that cashing out does not meet the requirements of an applicable award or enterprise agreement, or in the case of an award/agreement-free employee, s 93 of the FW Act, then it will be impermissible. This means that the employee will be able to take the benefit of the monetary payment and later claim the full entitlement to paid leave.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
