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Changes to annual leave
entitlements
5 October 2016
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Employers are reminded that the Fair Work Commission recently
introduced changes to the annual leave provisions contained in the
majority of modern awards. These provisions took effect from the
first pay period after 29 July 2016. A failure to comply with these
provisions exposes an employer to various sanctions, including
civil penalties of up to $54,000 per breach, as well as orders for
compensation for any damage suffered as a result of the breach.
Importantly, the changes that have been introduced have no effect
on the annual leave entitlements of employees who are not covered
by a modern award.
Cashing out of annual leave
The annual leave provisions contained in the majority of modern
awards have been amended to allow the cashing out of annual leave
in certain circumstances. In summary, the following conditions must
be met:
- the employer and employee must agree in writing to the cashing
out of a particular amount of annual leave;
- the agreement must specify the amount of leave to be cashed
out, the payment to be made to the employee, and when the payment
will be made;
- the maximum amount of accrued annual leave that may be cashed
out in any 12-month period is 2 weeks;
- an agreement must not result in the employee's remaining
accrued annual leave entitlement being less than 4 weeks; and
- each cashing out of a particular amount of annual leave must be
set out in a separate written agreement.
It is unlawful for an employer to exert undue influence or
pressure on an employee to make, or not make, a written agreement
to cash out any accrued annual leave.
Excessive annual leave
The majority of modern awards have also been amended to give
employers the specified right to direct an employee to take annual
leave where they have an 'excessive leave accrual', and to give
employees the right to effectively unilaterally take a period of
annual leave where they have an 'excessive leave accrual'. For the
purposes of these provisions, an 'excessive leave accrual' is
defined as where an employee has accrued more than 8 weeks' paid
annual leave (or 10 weeks' paid annual leave for a shiftworker). In
both cases, the employer and employee must first seek to confer
with the other and genuinely try to reach agreement on how to
reduce or eliminate the excessive leave accrual before exercising
their rights.
Granting annual leave in advance
The majority of modern awards have been amended to include new
provisions for the taking of annual leave in advance. Under the
provisions, annual leave may only be taken in advance by written
agreement between the employer and employee. The agreement must
state the amount of leave to be taken in advance and when the leave
is to be taken. If, on the termination of the employee's
employment, the employee has not accrued an entitlement to a period
of annual leave already taken, the employer may deduct from any
money due to the employee on termination an amount equal to the
amount already paid to the employee for the leave taken in
advance.
What should employers do?
Employers should consider whether any of their employees are
covered by a modern award if they have not done so already and, if
they are covered, ensure that their written contracts of employment
and any written policies and procedures in place comply with the
new provisions. From a practical perspective, if employers are
considering granting annual leave in advance, directing an employee
to take a period of annual leave, or cashing out a period of annual
leave for any award-covered employee, they should carefully review
the terms of the applicable award to ensure the necessary
conditions for doing so will be satisfied. Employers may wish to
obtain legal advice in this regard. A copy of any written agreement
entered into with an employee for the cashing out of annual leave
or the taking of leave in advance must be kept by the employer for
at least 7 years.
Should you have any queries in relation to this alert, please
contact:
Martin Alden
Partner
Phone (direct) +61 3 9608 2273
Email m.alden@cornwalls.com.au
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