The enormous value of Australian workers' accumulated annual
leave entitlements was the subject of research undertaken by
Tourism Australia in the wake of the global financial crisis. In
2009, Australians had accumulated 123 million days of annual leave,
which equated to wages in excess of $33 billion. Research revealed
that approximately 25% of full-time employees in Australia accrue
their annual leave, by having over five weeks' leave owing at
any one time.
It is important that employers address the reasons why some
employees allow their leave to accrue, and ensure that they are
aware of the circumstances in which employees may be directed to
take leave or may cash out their leave. Provisions concerning
annual leave are contained in the National Employment Standards
(NES) within Part 2 of the Fair Work Act
2009 (the 'FW Act'). The NES apply to
all national system employers and employees.
While there is a range of reasons for the accrual of leave,
employees who 'stockpile' their leave seem to fall within
employees who wish to keep accumulated leave as insurance
against unemployment, illness or emergency;
workers who accumulate their leave in order to take substantial
holidays (which may generate the need for temporary cover);
employees who feel that their workload and/or managerial
responsibilities make it very difficult for them to take
Employees falling within this last category should be offered
sufficient support to enable them to take the leave that they are
legitimately entitled to take.
It goes without saying that employers need to keep accurate
records of employees' leave entitlements, amongst other
records. This is mandatory under both the FW Act and the Fair Work
Regulations 2009. The FW Act provides for paid annual leave to be
taken for a period agreed between the employer and employee, and to
be paid at the employee's ordinary rate of pay (unless a Modern
Award or enterprise agreement provide for leave loading). The
employer cannot unreasonably refuse an employee's request to
take paid leave. Section 94(1) of the FW Act permits an employer
and an award/agreement-free employee to come to an agreement,
permitting the employee to cash out annual leave. That agreement
must be in writing and specify both the rate of payment of the
cashed out leave and when the payment was made, with a copy
retained by the employer. An employee cannot cash out paid annual
leave if the employee's remaining annual leave entitlement
falls below four weeks' accrual.
Section 129(a) of the FW Act permits employers and
award/agreement-free employees to also reach agreement for the
provision of extra annual leave in exchange for the worker
foregoing the equivalent amount of pay and/or for extra
personal/carer's leave to be provided in exchange for the
equivalent amount of pay. These agreements should also be confirmed
in writing and copies retained by the employer.
In relation to an award/agreement-free employee who has accrued
an excessive amount of annual leave, an employer may require the
employee to take a period of annual leave if the requirement is
reasonable (eg during an annual shutdown or where the
employee's leave entitlement exceeds, for example, eight
weeks). Modern Awards and enterprise agreements may include
specific terms providing for the cashing out of paid leave and/or
the requirement for an employee to take paid annual leave in
particular circumstances. Employers should have regard to these
specific provisions before taking action.
On termination of employment, the Fair Work Act provides that an
employee's accrued annual leave is paid at the same rate as
though the leave had been taken. For award-free employees, this
means their base rate of pay. However, some Modern Awards require
payment of leave loading on termination. Accordingly, payment of
accrued leave on termination should be examined on a case-by-case
basis, depending on the instrument that governs the employee's
conditions of employment. For a number of reasons, including the
health of employees, it is undesirable for employers to permit the
accumulation of excessive annual leave entitlements. Provided that
accurate records are maintained in relation to the taking,
cashing-out or purchasing of leave, employers have several
mechanisms available to them to contain the accrual of excessive
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.
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