Annual leave can now be cashed out under most modern awards,
following a determination by the Fair Work Commission (FWC) last
year, which comes into effect from the first pay period on or after
29 July 2016. This change will impact millions of employees in
Australia who are covered by the relevant modern awards. The change
does not apply to employees covered by an enterprise agreement or
otherwise not covered by a modern award, although many employees
under these alternative types of cover are already entitled to cash
out annual leave under existing arrangements.
The change that allows cashing out of annual leave takes the
form of a model clause inserted into most modern awards. The key
features of the model clause are:
no more than two weeks' accrued annual leave can be cashed
out in any 12-month period
the cashing out of leave cannot result in an employee's
remaining accrued annual leave entitlement being less than four
each instance of cashing out of leave must be agreed to in
writing and signed by the employee (or their parent/guardian if
Inserting this provision to allow the cashing out of annual
leave was sought by employers, but hotly contested by unions. In
approving the proposal, the FWC noted they had previously been
reluctant to allow the cashing out of leave because it could
undermine the purpose of annual leave—to provide employees
with a physical and mental respite from work. However, the FWC felt
that with the more frequent use of these provisions in enterprise
agreements and with agreement-free employees, that it should meet
the demand—especially given that the provisions could be
drafted to include safeguards to protect entitlements (as set out
The model clause is one of a raft of amendments to modern
awards, forming part of the FWC's four-yearly review. Other
changes to modern awards around the accrual and taking of annual
leave include allowing employees to take annual leave before
they've accrued it and when an employee can be directed to take
One of the more controversial proposals being considered in the
review is whether weekend penalty rates should be reduced. This is
set to be determined by the FWC in September 2016.
In view of these changes, businesses should consider whether the
model clause applies to their employees and, if so, whether they or
their employees wish to take advantage of the model clause to
facilitate the cashing out of annual leave. Employers should also
ensure that appropriate records are kept of any agreement for the
cashing out of leave, as this will be a requirement under the model
clause and may be enforced by the Fair Work Ombudsman.
A full list of the modern awards that have incorporated the
model clause can be
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).