Call free on
1300 575 394
Get a quote

When an employee has too much annual leave, what can employers do?

Different options need to be reviewed to lower the accrued liability.
Return to previous page
When an employee has too much annual leave, what can employers do?

When an employee has too much annual leave, what can employers do?

26 April 2021

Many businesses report on the amount of accrued annual leave liability and encourage employees to take annual leave to manage the liability. In the case of excessive annual leave which could be from greater than four weeks up to three months, different options need to be reviewed to lower the accrued liability.

Most modern awards contain a ‘standard’ clause which permits an employer to send an employee on annual leave where there is an excessive balance of leave. An award may also contain terms which provide for an employee to request annual leave when they have an excessive amount of accrued annual leave.

For example, the Clerks – Private Sector Award 2010 defines ‘excessive amount of annual leave’ as leave in excess of eight weeks. The clause is as follows:

32.7 Excessive leave accruals: direction by employer that leave be taken

(a) If an employer has genuinely tried to reach agreement with an employee under clause 32.6(b) but agreement is not reached (including because an employee refuses to confer), the employer may direct the employee in writing to take one or more periods of paid annual leave.
(b) However, a direction by the employer under paragraph (a):
(i) is of no effect if it would result at any time in the employee’s remaining accrued entitlement to paid annual leave being less than six weeks when any other paid annual leave arrangements (whether made under clause 32.6, 32.7 or 32.8 or otherwise agreed by the employer and employee) are taken into account; and
(ii) must not require the employee to take any period of paid annual leave of less than one week; and
(iii) must not require the employee to take a period of paid annual leave beginning less than eight weeks, or more than 12 months, after the direction is given; and
(iv) must not be inconsistent with any leave arrangement agreed by the employer and employee.
(c) The employee must take paid annual leave in accordance with a direction under paragraph (a) that is in effect.
(d) An employee to whom a direction has been given under paragraph (a) may request to take a period of paid annual leave as if the direction had not been given.

Note 1: Paid annual leave arising from a request mentioned in paragraph (d) may result in the direction ceasing to have effect. See clause 32.7(b)(i).

Note 2: Under section 88(2) of the Fair Work Act, an employer must not unreasonably refuse to agree to a request by an employee to take paid annual leave.

This means an employer can direct employees to take the balance of their annual leave which exceeds eight weeks' accrual. Consequently, an employee’s annual leave balance cannot be less than eight weeks where directed by an employer. An employee, however, can request taking all or any amount of accrued annual leave, subject to reasonable refusal by an employer.


Modern awards

Modern awards may also contain terms which deal with an employee request for annual leave where they have an excessive balance of accrued leave. For example, the Clerks – Private Sector Award 2010 provides as follows:

32.8 Excessive leave accruals: request by employee for leave

(a) If an employee has genuinely tried to reach agreement with an employer under clause 32.6(b) but agreement is not reached (including because the employer refuses to confer), the employee may give a written notice to the employer requesting to take one or more periods of paid annual leave.
(b) However, an employee may only give a notice to the employer under paragraph (a) if:
(i) the employee has had an excessive leave accrual for more than six months at the time of giving the notice; and
(ii) the employee has not been given a direction under clause 32.7(a) that, when any other paid annual leave arrangements (whether made under clause 32.6, 32.7 or 32.8 or otherwise agreed by the employer and employee) are taken into account, would eliminate the employee’s excessive leave accrual.
(c) A notice given by an employee under paragraph (a) must not:
(i) if granted, result in the employee’s remaining accrued entitlement to paid annual leave being at any time less than six weeks when any other paid annual leave arrangements (whether made under clause 32.6, 32.7 or 32.8 or otherwise agreed by the employer and employee) are taken into account; or
(ii) provide for the employee to take any period of paid annual leave of less than one week; or
(iii) provide for the employee to take a period of paid annual leave beginning less than eight weeks, or more than 12 months, after the notice is given; or
(iv) be inconsistent with any leave arrangement agreed by the employer and employee.
(d) An employee is not entitled to request by a notice under paragraph (a) more than four weeks’ paid annual leave (or five weeks’ paid annual leave for a shift worker, as defined by clause 32.2) in any period of 12 months.
(e) The employer must grant paid annual leave requested by a notice under paragraph (a).


Cashing out annual leave

Another option in reducing excessive accruals of annual leave is to agree to cashing out of annual leave. This arrangement is permitted when provided under the terms of the applicable modern award. In this case, the Clerks - Private Sector Award 2010 (cl 32.9) provides for the cashing out of annual leave, subject to certain restrictions.

These restrictions are:
  • each cashing out is subject to a separate written agreement which states the amount of leave to be cashed out, the payment made to the employee and the date payment is made
  • payment is at the rate of pay the employee would have received had the leave been taken
  • the remaining accrued balance must be at least four weeks' annual leave, and
  • the maximum amount of annual leave that can be cashed out in any 12-month period is two weeks.

These conditions reflect the ‘standard’ clause for cashing out of annual leave that is contained in most modern awards.


Award/agreement-free employees

Under the Fair Work Act (s94(5)), an employer may require an award/agreement-free employee to take a period of annual leave but only if the request is reasonable. A legislative note in the Act provides examples of reasonable requests. These include an employee having accrued an excessive amount of annual leave (for example, eight weeks or more), or an employer’s business being shut down for a period (Christmas-New Year close down).
 
Under the Fair Work Act (s94), an employer and an award/agreement-free employee may agree to cash out some of the employee’s accrued annual leave. An employee must be left with an annual leave balance of at least four weeks after cashing out has occurred. Each agreement to cash out an amount of annual leave must be a separate agreement in writing. The amount is equal to an employee’s base rate of pay payable had the employee taken the annual leave.

The bottom line: An employer may direct an employee to take annual leave subject to the terms of the applicable modern award. An award/agreement-free employee may be directed to take annual leave subject to the provisions of the Fair Work Act.

Sign up to get the latest news and updates

Like what you’re hearing?

With plans available from just $58 per week, now is an excellent time to join Workplace Assured.

PROTECTION
REASSURANCE
GUIDANCE