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Annual Leave Under the Fair Work Act 2009

Annual Leave Under the Fair Work Act 2009

Published on April 27, 2011 by Janine Smith

The enormous value of Australian workers’ accumulated annual leave entitlements was the subject of research undertaken by Tourism Australia in the wake of the global financial crisis. In 2009, Australians had accumulated 123 million days of annual leave which equated to wages in excess of $33 billion. Research revealed that approximately 25% of full-time employees in Australia accrue their annual leave, by having over five weeks’ leave owing at any one time.
It is important that employers address the reasons why some employees allow their leave to accrue, and ensure that they are aware of the circumstances in which employees may be directed to take leave or may cash out their leave. Provisions concerning annual leave are contained in the National Employment Standards (NES) within Part 2 of the Fair Work Act 2009 (the ‘FW Act’). The NES apply to all national system employers and employees.
While there is a range of reasons for the accrual of leave, employees who ‘stockpile’ their leave seem to fall within three categories:
  • employees who wish to keep accumulated leave as insurance against unemployment, illness or emergency;
  • workers who accumulate their leave in order to take substantial holidays (which may generate the need for temporary cover); and
  • employees who feel that their workload and/or managerial responsibilities make it very difficult for them to take leave.
Employees falling within this last category should be offered sufficient support to enable them to take the leave that they are legitimately entitled to take.
It goes without saying that employers need to keep accurate records of employees’ leave entitlements, amongst other records. This is mandatory under both the FW Act and the Fair Work Regulations 2009. The FW Act provides for paid annual leave to be taken for a period agreed between the employer and employee, and to be paid at the employee’s ordinary rate of pay (unless a Modern Award or enterprise agreement provide for leave loading). The employer cannot unreasonably refuse an employee’s request to take paid leave. Section 94(1) of the FW Act permits an employer and an award/agreement free employee to come to an agreement, permitting the employee to cash out annual leave. That agreement must be in writing and specify both the rate of payment of the cashed out leave and when the payment was made, with a copy retained by the employer. An employee cannot cash out paid annual leave if the employee’s remaining annual leave entitlement falls below four weeks’ accrual.
Section 129(a) of the FW Act permits employers and award/agreement free employees to also reach agreement for the provision of extra annual leave in exchange for the worker foregoing the equivalent amount of pay and/or for extra personal/carer’s leave to be provided in exchange for the equivalent amount of pay. These agreements should also be confirmed in writing and copies retained by the employer.
In relation to an award/agreement free employee who has accrued an excessive amount of annual leave, an employer may require the  employee to take a period of annual leave if the requirement is reasonable (eg during an annual shutdown or where the employee’s leave entitlement exceeds, for example, eight weeks). Modern Awards and enterprise agreements may include specific terms providing for the cashing out of paid leave and/or the requirement for an employee to take paid annual leave in particular circumstances. Employers should have regard to these specific provisions before taking action.
On termination of employment, the Fair Work Act provides that an employee’s accrued annual leave is paid at the same rate as though the leave had been taken. For award-free employees, this means their base rate of pay. However, some Modern Awards require payment of leave loading on termination. Accordingly, payment of accrued leave on termination should be examined on a case-by-case basis, depending on the instrument that governs the employee’s conditions of employment. For a number of reasons, including the health of employees, it is undesirable for employers to permit the accumulation of excessive annual leave entitlements. Provided that accurate records are maintained in relation to the taking, cashing-out or purchasing of leave, employers have several mechanisms available to them to contain the accrual of excessive annual leave.

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