Excessive annual leave accruals can be a significant liability for business but can usually be avoided if managed properly. Under the National Employment Standards (NES), an employer can give award/agreement-free employees notice to take excessive accumulated annual leave. Modern awards may also permit an employer to require an employee to take excessive accrued leave.
Ensuring that annual leave is well-managed within an organisation can reduce the liability of high annual leave balances, as well as promote a healthy workplace which can improve productivity and attendance.
The information in this article aims to help employers determine circumstances in which they can issue a direction to an employee onto a period of annual leave, as well as how to respond to requests from an employee to cash out a period of annual leave.
What is an excessive annual leave accrual?
An employee is defined as having an “excessive leave accrual” if the employee has accrued more than 8 weeks’ paid annual leave. Most modern awards now contain provisions that allow an employer to direct an employee to take annual leave. This direction can only be given after the employer has tried to genuinely reach agreement with an employee to take a period of leave.
Excessive leave balances occur for several reasons including:
When can an employer direct the employee to take leave?
Under the modern awards which contain the ability to direct an employee to take leave, the employer may direct the employee in writing to take one or more periods of paid annual leave, provided that:
An employer may require an award/agreement free employee to take a period of paid annual leave but only if the requirement is reasonable. A requirement to take paid annual leave may be reasonable if, for example, an employee has accrued an excessive amount of annual leave or the employer’s enterprise is being shut down for a period, such as Christmas and New Year.
How can an employer avoid having excessive annual leave accruals?
Encouraging the regular taking of annual leave is important to managing the financial liability of leave balances, and to ensuring productivity is not affected by over-worked and stressed employees. Employees who “stockpile” their annual leave are not getting the necessary breaks from work to allow them to relax and recharge, and this can contribute to stress at work and greater likelihood of employees becoming ill.
Organisations should encourage a workplace culture where employees feel that they can take regular periods of annual leave, and look at any barriers that may exist to taking leave, such as workload before and after leave, lack of resources to cover leave periods and management support.
Other strategies to assist in the management of excessive leave include:
The above strategies are dependent on the operational requirements of the organisation, as well as the industrial instrument provisions that apply to employees.
How does an employee cash out a period of annual leave?
A clause was inserted into nearly all awards enabling an employer and an employee to agree in writing to the cashing out of a particular amount of annual leave, subject to a number of requirements including:
For award-free employees, section 94 of the Fair Work Act also allows an employer to agree in writing with the employee to cash out annual leave. Unlike award-covered employees, there is no limit to how much annual leave an employee can seek to cash out, as long as 4 weeks leave entitlement remains in their accruals.
Further advice or assistance
For further advice or assistance on this topic, or any workplace relations matter, Employment Plus clients who have placed two or more candidates have free access to the Ai Group Workplace Advice Line.
Call 1300 862 217, 8.30am – 5.15pm AEST Monday – Friday