Most Read Contributor in Australia, September 2016
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 ( 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
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 ( FWAFB 6709), which
ruled that an enterprise agreement could provide for the
entitlement for leave payments by means of a loaded-up wage
Eight days later the FWC ruled on a similar clause and also
rejected it for slightly different reasons (Fortress Systems Pty
Ltd  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.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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