As part of its four-yearly review of modern awards, the Fair
Work Commission has examined the issues of excessive annual leave
and the cashing out of annual leave – both common issues for
our employer clients.
Some employees are so committed to work that they take little
leave (which is less than ideal for their ongoing wellbeing, and
which results in ever-increasing provisions in the accounts as pay
levels increase), or see the accrual as a cash nest egg payable on
eventual termination, rather than an opportunity to take a
Proposed changes by the Fair Work Commission may make these
issues easier to handle.
Excessive annual leave
The review noted that employees with excessive annual leave
could have negative cash flow impacts on employers when it came to
paying out annual leave if they left their job. The proposed
changes will give more definition to an employer's right to
direct the employee to take leave.
The Fair Work Commission has proposed a new model term about
excessive annual leave be included in 70 awards and, potentially,
in all modern awards. This will allow employers to direct employees
with excessive accrued annual leave (more than eight weeks for
non-shift workers and 10 weeks for shift workers) to take leave,
Before directing leave to be taken, the employer has requested
a meeting with the employee and has genuinely tried to agree upon
steps that will be taken to reduce or eliminate the employee's
excessive leave accrual without the need for a direction
the directed leave won't result in the employee having less
than six weeks accrued annual leave left
the directed leave is for at least a week
notice of at least eight weeks and not more than 12 months is
provided to the employee of the directed leave
any existing agreed leave arrangement is taken into account (so
if an employee with 12 weeks accrued already has a month's
leave booked, a direction won't be appropriate).
Cashing out of annual leave
The Fair Work Act currently sets out that annual leave can't
be cashed out unless in accordance with provisions under an award
or enterprise agreement. This means it's generally illegal as
most modern awards don't provide for the cashing out of annual
leave (except at the end of the employment).
The Commission has proposed a new model term about cashing out
of annual leave which will allow an employer and employee to agree
to the employee cashing out accrued annual leave if:
Each cashing out of a particular amount is agreed by a separate
the employee is paid the full amount that would have been
payable had the employee taken the leave at the time that it is
the cashing out won't result in the employee's
remaining accrued entitlement being less than four weeks, and
the employee doesn't cash out more than two weeks in any 12
Both these proposed changes are subject to more submissions and
hearings, with a further hearing currently listed for 7 August,
2015. Given that the timetable for the four-yearly review goes up
to December, these changes are unlikely to come into force until
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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An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
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