Annual leave used to be dealt with in the Annual Leave Act 1944 (NSW). This Act was replaced by the Fair Work Act 2009 (Cth) (“FW Act”) on 1 January 2010.

On 11 June 2015, as part of the Common Issue Four Yearly Review of Modern Awards, the Fair Work Commission (“FWC”) determined some proposed changes to the Annual Leave Provisions in Modern Awards.

The scope of the common issue review includes the following matters:

(i) cashing out annual leave;

(ii) excessive annual leave;

(iii) annual close-down;

(iv) granting annual leave in advance;

(v) purchased leave;

(vi) payment of annual leave entitlements on termination; and

(vii) EFT and paid annual leave.

Final determinations have been made in relation to cashing out annual leave and payment of paid annual leave by EFT.

The FWC will continue to receive further oral and written submissions about proposed changes to all modern awards in relation to dealing with excessive annual leave, enabling businesses to shut down and require annual leave to be taken, granting leave in advance and purchasing leave.

Since the FWC 11 June 2015 Decision in relation to annual leave, a Full Bench of the Federal Court in Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCAFC 100 (23 July 2015)) has determined that, on the termination of their employment, employees must be paid the same as they would have been paid if they had taken all their accrued annual leave.

(i)     Cashing Out Annual Leave

In accordance with s.94 of the FW Act, employees who are Award-free are able to cash out their annual leave.

However, for Award covered employees, if a Modern Award does not allow for cashing out of annual leave, then it is illegal to cash out.

The FWC will amend all Modern Awards to allow employees to cash out their accrued but unused annual leave.

The changes allow the employer and employee to agree to cash out some of the employees accrued annual leave subject to the following:

    • Employees can cash out a maximum of only two (2) weeks of annual leave a year, but must be left with at least four (4) weeks of accrued annual leave.
    • Employees must be paid the full amount they would have received if they had actually taken the leave.
    • Employers do not have to agree to cash out annual leave, but employers cannot force or pressure any employee to cash out their accrued but unused leave or misrepresent their rights in relation to this.

(ii)    Requirement to pay Annual Leave prior to employee going on leave

Some modern awards require the employer to pay annual leave in advance. The FWC has determined that all Modern Awards can be amended so that, if an employer pays by EFT, then the annual leave payment can be made in accordance with its usual pay cycle.

We will keep you informed about when these proposed changes will be inserted into the Modern Awards. The WilliamsonLegal Team are here to help if you have any concerns about how your business is administering annual leave for Award employees.