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New rules for cashing out annual leave

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By Brenton Allen, Lawyer, MST Lawyers

On 29 July 2016, the Fair Work Commission varied 112 modern awards to include new terms regarding the taking of, and payment for, annual leave. Numerous modern awards will now, in certain circumstances, allow employers and employees to agree to cash out portions of an employee’s accrued annual leave entitlements and allow employers to direct employees to take annual leave where they have an excessive accrual.

Under the awards, annual leave is now able to be cashed out where the following has been complied with:

  1. An agreement to cash out annual leave must be in writing, state the amount of leave to be cashed out and the date for which payment is to be made;
  2. The agreement must be signed by both the employer and employee (if an employee is under the age of 18, the agreement must be signed by the employee’s parent or guardian);
  3. The payment must not be less than the amount that would have been payable had the employee taken the leave at the time the payment is made;
  4. The agreement must not result in the employee’s remaining accrued annual leave entitlement falling below 4 weeks; and
  5. The maximum amount of accrued paid annual leave that may be cashed out in a 12 month period is 2 weeks.

The variation to the awards will also allow employers to direct employees to take annual leave in the following circumstances:

  1. If the employee has an excessive annual leave accrual (defined as an accrual of more than 8 weeks’ annual leave);
  2. The parties have genuinely tried to reach an agreement on how to reduce or eliminate the excessive leave accrual; and
  3. If the parties cannot agree on a period of annual leave, the employer may direct the employee to take a period of paid annual leave on 8 weeks’ notice, provided the employee’s annual leave accrual will not fall below 6 weeks and the period of leave to be taken is not less than one week.

An example of the Fair Work Commission’s decision can be accessed here.

Employers operating under enterprise agreements or collective agreements should continue to refer to their applicable agreement for terms relating to the taking of annual leave.

For more information, please contact our Employment Law and Workplace Safety team by email workplace@mst.com.au or by telephone Ph: +61 3 8540 0200.