Annual leave is an entitlement under the National Employment Standards (NES) for all full-time and part-time employees under the national system. The annual leave provisions of the NES should be read in conjunction with any annual leave provisions in an applicable Award or contract of employment where they are more beneficial than the provisions of the NES.
Accrual of Annual Leave
All full-time employees are entitled to accrue annual leave at the rate of 4 weeks (or 20 working days per annum). Part-time employees are entitled to a pro-rata amount of accrued annual leave.
Annual leave continues to accrue while an employee is absent from work on paid leave (such as sick leave or annual leave).
Annual leave does not accrue while the employee is absent from work on unpaid leave (such as unpaid parental leave or leave of absence).
Shift-workers (i.e. those engaged on a 24/7 roster regularly required to work Sundays and public holidays) are entitled to an additional 1 week or 5 days of annual leave per annum, accrued on a pro-rata basis for a part-time employee.
Annual leave does not apply to casual employees.
Taking of Annual Leave
Annual leave shall be given and taken at times to be mutually arranged between the employee and their employer. Whilst consideration will be given to employee’s individual requests, it may not be possible to grant leave at certain periods of the year if the business interest of employer is jeopardised.
An employer cannot unreasonably refuse to agree to a request by the employee to take paid annual leave.
Payment on Annual Leave
The employee’s ordinary hours determine the rate at which the entitlement to annual leave accrues and also the entitlement to payment when annual leave is taken. An employee is to be paid at their “base rate of pay” for a period of annual leave, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates.
Annual Leave Loading
Annual leave loading is not a condition under the NES but is a common provision in many Awards, if applicable. For award-bound employees, annual leave loading can be offset with compensation and adequate offset terms in the employee’s contract of employment.
There are detailed rules in Awards where an employee has excessive amounts of leave. “Excessive leave” means more than 8 weeks of accrued annual leave. If an employee has excessive leave accruals, and their employer wants to direct them to take leave, the employer must confer with the employee, and genuinely try to reach agreement on how to reduce or eliminate the excessive leave accrual. If agreement cannot be reached, then the employer may direct the employee to take annual leave, subject to the following conditions:
- The remaining balance of the employee’s leave accrual must not be less than 6 weeks. So, if an employee has 8 weeks of leave (the minimum to constitute “excessive leave”), then the maximum the employer may direct them to take is 2 weeks. If they had 10 weeks, it would be 4 weeks etc;
- The employer cannot require the employee to take a period of less than a week of leave; and
- The employee must be given 8 to 52 weeks’ notice of when the leave is to be taken (no more, no less).
If such a direction is given to the employee they may nevertheless request to take the leave in some other way (such as a different amount of leave, or at a different time – like a time that suits their preference for a holiday arrangement etc). If such a request is made, the employer must not unreasonably refuse it. What constitutes “unreasonable” will depend on the circumstances.
Cashing Out Annual Leave
Cashing-out is only permitted for Award-free employees and Award-covered employees only if their Award specifically permits it.
Cashing-out of annual leave with the genuine agreement of the employee and employer allows for a maximum amount of two weeks in any 12-month period is 2 weeks resulting in a retained balance of at least 4 weeks after any cashing-out occurs.
Annual Leave on Termination
The Fair Work Act states that the employer must pay the employee the amount that would have been payable to the employee had the employee taken any accrued leave up to termination of employment. This would therefore include payments such as annual leave loading, if applicable.
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The information provided in this knowledge base article is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.