The Full Bench of the Fair Work Commission reached a crucial verdict for employees covered by modern awards that will change annual leave entitlements.
The ruling will be inserted into all modern awards, giving employers important new rights and more flexible leave arrangements with their employees.
Annual leave overview
All full-time and part-time employees are entitled to four weeks of annual leave in a 12 month cycle. Accrued annual leave is based on their ordinary hours of work during the year. Because there is no minimum or maximum amount of annual leave that can be taken at a time, employees can hoard their leave entitlements.
Direction to take leave
Under the new rule, businesses with employees covered by modern awards can now direct their staff to take time off from work once they have accumulated eight weeks of leave. The decision provides welcome relief to employers who have long dealt with the detrimental effects of accrued annual leave.
Before making a direction, the employer and the employee must reach an agreement on how to reduce or eliminate excessive annual leave. In situations where both parties cannot find a suitable solution, an employer can give their employee a written direction to take leave.
The direction must be in writing, and meet the following requirements:
- The direction must not leave the employee with less than six weeks of paid annual leave after the directed annual leave is taken.
- The employee cannot be directed to take off a period of leave of less than one week.
- The employee cannot be directed to take leave less than eight weeks, or more than one year after the date of the direction.
- The direction cannot be contradictory to any leave arrangements already in place.
Cashing out of annual leave
A further ruling enables employees covered by modern awards to cash out a portion of their annual leave, rather than taking their leave. Employees who elect to receive cash instead of taking leave, should their employer agree, must satisfy the following conditions:
- The cash-out agreement must be in writing and signed by both parties. The agreement must be retained by the employer.
- The agreement must state the amount of leave to be cashed out, the payment to be made to the employee, and when it will be made.
- Annual leave cannot be cashed out if it results in the employee’s remaining entitlement being less than four weeks.
- Employees are not allowed to cash out more than two weeks of accrued annual leave in a 12 month period.