Questions & Answers - Annual Leave

Question:

An employee has asked us to cash out some of his annual leave. There is nothing in the employee’s employment contract about this and we don’t have workplace agreements. The employee has accrued over 8 weeks’ annual leave. Can we do this given it is not stated in her contract?

Answer:

Not this year. However, next year you will be able to make a written agreement with the employee to cash out annual leave, provided the employee retains at least 4 weeks accrued leave. This year you could only make a payment in advance of leave to be taken or cashed out next year, provided that when the occasion arose next year for the leave to be taken or cashed out you supplement the payment as necessary to account for any pay increases occurring since the date of advance payment.

Question:

Is it ok to allow cashing out of annual leave now i.e. pre 01/01/10. The employee in question would still have over 4 weeks accrued entitlement.

Answer:

Cashing out annual leave prior to 1 January 2010 is only possible if a provision in an applicable workplace agreement permits this and that provision accords with the requirements of s 233 of the Workplace Relations Act (which requirements include a cap on the amount of leave that can be cashed out each year i.e. 2 weeks).

Absent this provision, you could certainly make a payment in advance of an employee taking annual leave, provided that when the employee actually exercised the entitlement (either by taking it or getting it paid out on termination) you topped up the payment as required to account for any pay increases that occurred since the time of advance payment.

Question:

I have approximately 200 hours annual leave. Can my employer pay me my annual leave entitlement with not taking time off work?

Answer:

Not unless you have a workplace agreement (i.e. statutory agreement not just an employment contract) which permits this - and there are limitations on the amount of leave that can be cashed out pursuant to a workplace agreement.

You could ask your employer to pay you in advance for the 200 hours leave, on the basis that when the time came to take it (or more realistically when your employment ended) the only payment you would receive for those 200 hours would be 200 x (your hourly rate at the time you exercise your entitlement minus your hourly rate at the time of advance payment) x 1.175 (if you are entitled to annual leave loading).

Next year it will be possible to make arrangements with employers to cash out annual leave under the National Employment Standards.

Question:

Can you cash out an employee's leave if they are on a contract but were fulltime before this? We just rolled their entitlements over as they were staying with us on the contract?

Answer:

Yes, if an employee moves from ongoing employment to fixed term you can pay out unused annual leave at the time the ongoing employment ceases.

Question:

1. In your help desk archives you note "next year you will be able to make a written agreement with the employee to cash out annual leave...". Can you advise on what form this agreement may need to take. Will it need to be written into contracts, or a simple letter between an individual and the company?
2. Leave loading: Are there any states where leave loading is still a legislative entitlement?

Answer:

1. There is a free form available on the Fair Work Assist Resource Centre website (www.fairworkassist.com.au) under ‘Implementation > Toolkit’.
2. No, but there are in ACT and NT.

Question:

We are currently trying to make our budgets fit for next year and need to make substantial savings on our wages bill. Staff covered by the Certified Agreement are entitled to 5 weeks annual leave per annum. We want to ask them to accept a reduction to 4 weeks leave next year which would help us avoid redundancies. Are we breaching the Fair Work Act by asking staff to accrue/ take less leave than they are entitled to?

Answer:

Yes, in the absence of a cashing out provision you need to recognise the 5 weeks’ annual leave. If it is a pre-work choices certified agreement you have until the end of this year to vary it by agreement with the employees covered (and any union party).

Question:

Is it mandatory that annual leave is paid out if requested? Or does the company have discretion both on award & non award employees.

Similar question for personal leave.

Answer:

This year an employee may only elect to cash out their annual leave or personal/carer’s leave where a workplace agreement permits this, in which case the request must be in writing and a certain amount of accrued leave must be retained (2 weeks in the case of annual leave and 15 days in the case of personal/carer’s leave).

Next year, all employees may reach agreement with their employers to cash out accrued paid annual or personal leave, subject to conditions stipulated in the National Employment Standards.

Question:

Under the NES an employee can request to cash out his existing leave? Correct? Under the current legislation is this illegal?

Answer:

This year an employee may only elect to cash out their annual leave or personal/carer’s leave where a workplace agreement permits this, in which case the request must be in writing and a certain amount of accrued leave must be retained (2 weeks in the case of annual leave and 15 days in the case of personal/carer’s leave).

Next year, all employees may reach agreement with their employers to cash out accrued paid annual or personal leave, subject to conditions stipulated in the National Employment Standards.

Question:

Are there provisions under the NES to direct employees to take annual leave?

Answer:

Yes, from next year you can direct an award/agreement free employee to take leave provided the requirement is reasonable. In terms of award-based staff you will need to comply with any award provisions regulating this matter.

Question:

Can you please let me know if Care Workers within Aged Care are to be paid leave loading when cashing out annual leave?

Answer:

Whether employees are to be paid leave loading when cashing out annual leave will depend on the terms of the award that applies in respect of the particular employee.

It will also depend on whether the employee is to cash out their annual leave before or after 1 January 2010, which is the date that the National Employment Standards come into effect under the Fair Work Act.

Currently, an employee cannot cash out their annual leave at a rate less than their basic hourly rate of pay. However, under the Fair Work Act an employee must be paid the full amount that they would have received had they taken the leave (this would include loadings).

Again, any award which applies to a particular employee may prescribe other terms in respect of cashing out annual leave.

Question:

Under s. 94(5) of the Fair Work Act - when is it reasonable for an employer to require an employee take leave? And if it is reasonable, how much paid annual leave has to have been accrued, and how much can an employee be ordered to take?

Answer:

The Fair Work Act provides two examples of when it may be reasonable for an employer to require an employee to take leave. These are where an employee has accrued an excessive amount of paid annual leave or if the employer's enterprise is being shut down for a period (such as over Christmas). Other factors to consider when assessing "reasonableness" in this regard are:

1. the needs of the employee and the employer's business;
2. any agreed arrangement with the employee;
3. the custom and practice in the business;
4. the timing of the requirement or direction to take leave; and
5. the reasonableness of the period of notice given to the employee to take leave.

As stated above, the FW Act notes that an employee may be required to take leave when they have accrued an "excessive amount". The FW Act does not, however, describe what constitutes an "excessive amount". The previous provisions regarding directing an employee to take annual leave (under the Workplace Relations Act) are probably useful as a guide. Under the WR Act an employee could be directed to take annual leave if they had more than 8 weeks' leave accrued. Such an employee could be directed to take an amount of leave that was less than or equal to 25% of the amount of leave that they had accrued.

Question:

When an employee requests a cash out of annual leave, do I have to contribute superannuation on that cash out amount?

Answer:

Yes, it is ordinary time earnings. Only leave payments on termination are SGC free.

Question:

Cashing out of Annual Leave: Can anyone request to have their annual leave cashed out, even if they are employed through an individual letter of offer?

Answer:

Presently, only employees who are covered by an industrial instrument, such as an award, that entitles them to cash out annual leave may do so.

After 1 January 2010, for employees who are award and agreement free, you may reach agreement with them to cash out their annual leave, provided that they reserve no less than 4 weeks' leave. Such an agreement must be recorded in writing every time such agreement is reached. You may only cash out annual leave for employees who are covered by Modern Awards or enterprise agreements if those instruments expressly provide for you to do so.

Question:

Annual Leave: Can employers direct employees to take annual leave within a certain timeframe so as to avoid accruing too much leave e.g. once 4 weeks leave is accrued can an employee be directed to take all of this leave with say 3-6 months? Does a certain amount of leave need to be retained? When can annual leave be cashed out? If cashing out does a certain amount of leave need to be retained?

Answer:

BEFORE 1 JANUARY 2010

Before this time, the Australia Fair Pay and Conditions Standard (Standard) as contained in the old Workplace Relations Act 1996 (Cth) continues to govern annual leave. The Standard provides that employees can only cash out annual leave if they are governed by an industrial instrument, such as an award or certified agreement that expressly states that they can.

Under the Standard an employer may direct an employee to take leave if the employee has extensive accumulated annual leave, in which case in which case the employee can be directed to take no more than 1/4 of the accumulated leave, or during periods of annual shut down.

ON AND AFTER 1 JANUARY 2010

After that time, the National Employment Standards (NES) on annual leave as contained in the Fair Work Act 2009 (Cth) will apply.

Employees who are not covered by a modern award or enterprise agreement may be directed to take a period of paid annual leave, but only if the requirement is reasonable. The Standard sets out specific examples of where such a requirement is reasonable, including where "the employer's enterprise is being shut down for a period" (for example, between Christmas and New Year". You may reach agreement with such employees to cash out annual leave. This agreement must be in writing ad the employee must reserve at least 4 weeks' annual leave.

For employees who are covered by modern awards or enterprise agreement, the NES provides that an employee can be directed to take annual leave, such as during a period of annual shut down, but only if the relevant modern award or agreement allows for this. Similarly, agreement can only be reached to cash out annual leave with such employees if it is expressly allowed under any relevant modern award or enterprise agreement.

Question:

1. Under new FWA, is the company obliged to pay out annual leave at employee request if greater than 4 weeks is accrued?
2. During 2 week company shutdown over Christmas period, can the company force employees to take leave if employee has indicated they do not wish to (i.e. even if company offers choice of leave without pay or employee to go into debit)?

Answer:

1. You may only cash out an employee's annual leave if a) they are not covered by an award or agreement, or b) there is a term in an enterprise agreement or modern award which applies to their employment and permits you to do so. If either of those situations apply, you must agree in writing to cash out the annual leave, and the employee must be left with at least 4 weeks' annual leave after the other portion is cashed out. Each agreement to cash out annual leave must be a separate written document.
2. Yes, you can require your employees to take a period of annual leave over the Christmas period if your business is shut down for that time. If they do not have the annual leave you can credit it to them at your discretion. You cannot compel them to take leave without pay for this purpose.

Question:

Annual Leave - Under the NES division 6 (94):

1. Can you advise on what is "excessive amount of paid annual leave" as this is not defined in the NES?
2. If an employer can direct an employee to take paid annual leave within a fixed period of time after it is accrued are there any rules around this e.g. (a) once say 4 weeks leave is accrued can the employee be asked to take this within say 3-6 months or 6-9 months? (b) if directed to take leave within a certain timeframe does the employee need to retain a certain amount of accrued leave?
3. Where a modern award states "Annual Leave is provided for in the NES" is it safe to assume that employees can be directed to take leave as in (2) above?
4. Where a modern award states "Annual Leave is provided for in the NES" is it safe to assume employees may cash out annual leave where it's not explicitly stated in the award?

Answer:

We respond to your questions, adopting your numbering:

1. Unfortunately, there is no definition of excessive annual leave, it will really be a matter of degree.
2. The guide for directing employees to take leave is whether the requirement is "reasonable". It may not always be reasonable to direct employees to take leave within the time frames specified, depending on the employee's circumstances. Having said this, you could institute this as a general policy and wait until such time as an employee complains that it is not reasonable. Alternatively, you could assess the situation on a case by case basis. For employees not covered by a modern award, there is no specific amount of annual leave that must be reserved. However, it is likely that a requirement for an employee to exhaust most or all of his or her annual leave would not be regarded as reasonable. For employees who are covered by a modern award, you will need to check if there is anything in the relevant modern award specifying that a certain amount of leave must be retained.
3. Yes.
4. No, you can only cash out annual leave for employees covered by a modern award if the modern award expressly allows for this.

Question:

I have just had a brief look through the Q&A archive and the answer to one of the questions below, can you please refer me to the area in the Fair Work Act 2009 which advises any employee is able to cash out annual leave as the employee retains at least 4 weeks? From my understanding under section 92 this is only the case if the employee is an award/agreement free employee or cashing out terms are included in the modern award or enterprise agreement?

Q&A archive question 2

Question:
An employee has asked us to cash out some of his annual leave. There is nothing in the employee's employment contract about this and we don't have workplace agreements. The employee has accrued over 8 weeks' annual leave. Can we do this given it is not stated in her contract?

Answer:
Not this year. However, next year you will be able to make a written agreement with the employee to cash out annual leave, provided the employee retains at least 4 weeks accrued leave. This year you could only make a payment in advance of leave to be taken or cashed out next year, provided that when the occasion arose next year for the leave to be taken or cashed out you supplement the payment as necessary to account for any pay increases occurring since the date of advance payment.

Answer:

You are correct in that section 92 of the Fair Work Act deals with the cashing out of annual leave and that, under this section, cashing out is only permitted in accordance with the following:

1. cashing out terms included in a modern award or enterprise agreement under section 93; or
2. an agreement between an employer and an award/agreement free employee under subsection 94(1).

Accordingly, those employees that will not be able to cash out annual leave will be those employees who are covered by a modern award or enterprise agreement that does not contain cashing out terms.

For those employees who are permitted to cash out annual leave, an employee will be required to retain at least 4 weeks leave. The relevant sections of the Fair Work Act are section 93(2) for employees covered by a modern award or enterprise agreement and section 94(2) for award/agreement free employees.

Question:

Can employees in NSW, VIC and QLD ask for cashing out annual and personal leave under the new NES?

Answer:

If the employees are modern award/enterprise agreement free, you can agree with them to cash out annual leave. Each such agreement must be in writing and the employee must reserve at least 4 weeks' leave. If employees are covered by modern awards/agreements, you will need to check whether the industrial instrument expressly allows for the cashing out of annual leave. Please note that the NES only apply to national system employers.