From 29 July 2016 important reforms to modern awards made by the
Fair Work Commission took effect, relating to the rules around
taking or otherwise using annual leave. These reforms will provide
some welcome flexibility for those employers regulated by the
Fair Work Act 2009 (Cth).
This article, authored by Senior Associate Damon King,
summarises those changes directly affecting over 1.3 million
employees (15% of the national workforce)1 and explains
how they might be adopted, subject to the individual needs and
requirements of each workplace.
Overview of changes
The Fair Work Commission (FWC) has varied many
modern awards with new or changed terms about accessing paid annual
There are changes to rules about:
cashing out annual leave;
managing excessive annual leave accrual balances;
taking annual leave in advance; and
payment of annual leave.
Not all award regulated employees are affected, however. For
example, the FWC is yet to determine which of these reforms will
apply to a number of maritime industry awards and other awards,
such as the Black Coal Mining Award 2010.
Cashing out annual leave
Most modern awards now allow employees to cash out some of their
accrued annual leave entitlements, subject to the following
a signed written agreement is required to be made on each
occasion with their employer;
at least four weeks annual leave has to be left "in the
bank" after cashing out; and
no more than two weeks leave may be cashed out in any 12
Managing excessive leave balances
New rules about what happens if an employee has accumulated an
excessive annual leave balance have also been introduced into a
significant number of modern awards. Excessive annual leave is when
an employee has accrued at least eight weeks leave (10 weeks for a
In those awards, if an employee has an excessive annual leave
balance and can't agree with their employer on when to take it,
after making genuine attempts to do so, the employer:
can direct the employee, in writing, to take annual leave from
a future date; but
must provide eight weeks or more advance notice of when the
leave will start.
There are additional rules about how long the period of
mandatory annual leave can be and how much the employee must be
left with afterwards.
Granting annual leave in advance
Most modern awards will now allow employees to take annual leave
before they have accrued it, if their employer agrees in writing to
such an arrangement.
Such an agreement must:
be signed by both the employer and the employee;
say how much annual leave is being taken in advance; and
specify when the annual leave will commence.
Payment of annual leave
A substantial number of modern awards previously specified that
annual leave had to be paid in advance before an employee commenced
their leave. A new clause has been added to these awards. Now, if
an employee is usually paid by electronic funds transfer, they can
continue to be paid during their usual pay cycle whilst taking paid
More changes on the horizon
Some modern awards will have inserted a new clause allowing
employees with excessive annual leave balances to tell their
employer that they will elect to take a period of leave, in
circumstances where they have been unable to genuinely reach an
agreement with their employer. Transitional arrangements apply and
these particular changes will not take effect until 29 July
On another note, in the coming months it is expected that the
FWC will hand down its long awaited decision in respect of the need
to make changes to weekend penalty rates in the retail and
1 Australian Bureau of Statistics, Australian
Labour Market Statistics, July 2011
When employees engage in out-of-hours misconduct, it can negatively affect the reputation of the employer.
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