27 Sep 2016

Annual leave – take the money and … stay?

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Annual leave changes in most modern awards took effect from 29 July 2016.

The Fair Work Commission has recently made some far-reaching changes to modern award annual leave provisions.  These changes give flexibility to employers and employees wishing to change their leave arrangements.  They also help to prevent issues with large leave accruals.

A large number of awards now include:

  • The ability to negotiate paid leave in advance;
  • The ability to reach an agreement to cash out leave;
  • The right for an employer to direct an employee to take leave when their accrued leave is excessive; and
  • The right for an employee to insist on taking leave when their accrued leave is excessive.

Leave in advance

113 awards have been varied to allow employers and employees to agree to taking paid leave before the employee has accrued an entitlement.

An agreement to take paid leave in advance must:

  • be in writing and signed by the employer and employee; and
  • state the amount of leave to be taken and the date on which the leave is to commence.

The employer must keep a copy of the agreement as an employee record.

If the employment ends before the employee accrues an entitlement to the leave taken in advance, the employer may deduct an amount equal to the amount paid to the employee from any money due on termination.

Cashing out

112 awards have been varied to allow employers and employees to agree to the employee cashing out leave.  Such an agreement must:

  • be in writing and signed by the employer and employee; and
  • state the cashed-out leave amount, the payment, and the payment date.

The employer must keep a copy of the agreement as an employee record.

In addition:

  • The payment to the employee must not be less than the amount that would have been payable had the employee taken the leave at the time when the payment is made.
  • An agreement must not result in the employee’s remaining accrued entitlement to leave being less than 4 weeks.
  • A maximum of 2 weeks’ accrued paid leave may be cashed out in a 12 month period.

Excessive leave accruals – employer’s direction

80 awards have been varied to insert excessive leave provisions.

An employee has “excessive leave accrual” if he/she has accrued more than 8 weeks’ paid leave (or 10 weeks for a shiftworker).  If an employee has excessive leave accrual, the employer or employee may seek to confer with the other and genuinely try to reach an agreement on how to reduce or eliminate the excessive leave accrual.

If an employer has genuinely tried to reach agreement, they may direct the employee to take one or more periods of paid leave.

This can only occur if:

  • the direction is in writing;
  • taking into account any other paid annual leave arrangements, the employee still has 6 weeks’ entitlement to paid annual leave remaining;
  • the period to be taken is not less than one week;
  • at least 8 weeks’ notice of the date on which the leave is to commence is given;
  • the period of leave does not commence more than 12 months after the direction to take leave is given; and
  • the direction is not inconsistent with any other leave arrangement agreed between the employer and employee.

Should the above requirements be satisfied, the employee must take paid annual leave as per the employer’s direction.

The employee can request annual leave at a different time.  If that request is granted, the employer’s direction to take a period of leave may no longer have effect if, for example, the employee’s remaining annual leave entitlement will be less than 6 weeks once the leave requested by the employee has been taken.

Excessive leave accruals – employee’s request to take leave

If an employee has an excessive leave accrual and the parties have genuinely attempted to agree but failed to do so, the employee may request one or more periods of paid annual leave.

The employer must grant the request if:

  • the notice is in writing;
  • there is an excessive leave accrual for more than 6 months at the time of giving the notice;
  • the employer has not directed the employee to take a period of paid annual leave to deal with excessive accrual which, when any other paid annual leave arrangements are taken into account, would eliminate the employee’s excessive leave accrual;
  • a grant would not result in the employee’s remaining accrued entitlement to annual leave being less than 6 weeks when any other paid annual leave arrangements are taken into account;
  • the request is less than one week’s annual leave;
  • the requested leave does not start less than 8 weeks from, or more than 12 months after, the notice;
  • it is not for more than 4 weeks’ paid annual leave (or 5 weeks for a shift worker);
  • the request is not inconsistent with any leave arrangement agreed by the employer and employee.

For more information, see the Fair Work Ombudsman website.

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About the Author


Rachel Lamb is a member of our Commercial Litigation practice group. She has previous experience working in the commercial law department of a well recognised commercial law firm. Rachel currently provides advice and representation in dispute resolution matters including in the areas of contractual disputes, and property, consumer and corporations law.

2 Responses to Annual leave – take the money and … stay?
  1. In the event that the parties cannot reach agreement, can an employer cancel any part of the accrued leave and reduce the accrued amount to a defined threshold?

  2. Hi David,

    Accrued leave cannot be cancelled unilaterally. The employer may direct the employee to take leave provided the relevant conditions are met.

    You will need to check the award that applies to the specific position for the parameters and operation dates.


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