From 29 July 2016 important reforms to modern awards made by the Fair Work Commission took effect, relating to the rules around taking or otherwise using annual leave. These reforms will provide some welcome flexibility for those employers regulated by the Fair Work Act 2009 (Cth).

This article, authored by Senior Associate Damon King, summarises those changes directly affecting over 1.3 million employees (15% of the national workforce)[1] and explains how they might be adopted, subject to the individual needs and requirements of each workplace.

Overview of changes

The Fair Work Commission (FWC) has varied many modern awards with new or changed terms about accessing paid annual leave entitlements.

There are changes to rules about:

  • cashing out annual leave;
  • managing excessive annual leave accrual balances;
  • taking annual leave in advance; and
  • payment of annual leave.

Not all award regulated employees are affected, however. For example, the FWC is yet to determine which of these reforms will apply to a number of maritime industry awards and other awards, such as the Black Coal Mining Award 2010.

Cashing out annual leave

Most modern awards now allow employees to cash out some of their accrued annual leave entitlements, subject to the following rules:

  • a signed written agreement is required to be made on each occasion with their employer;
  • at least four weeks annual leave has to be left “in the bank” after cashing out; and
  • no more than two weeks leave may be cashed out in any 12 months’ period.

Managing excessive leave balances

New rules about what happens if an employee has accumulated an excessive annual leave balance have also been introduced into a significant number of modern awards. Excessive annual leave is when an employee has accrued at least eight weeks leave (10 weeks for a shift worker).

In those awards, if an employee has an excessive annual leave balance and can't agree with their employer on when to take it, after making genuine attempts to do so, the employer:

  • can direct the employee, in writing, to take annual leave from a future date; but
  • must provide eight weeks or more advance notice of when the leave will start.

There are additional rules about how long the period of mandatory annual leave can be and how much the employee must be left with afterwards.

Granting annual leave in advance

Most modern awards will now allow employees to take annual leave before they have accrued it, if their employer agrees in writing to such an arrangement.

Such an agreement must:

  • be signed by both the employer and the employee;
  • say how much annual leave is being taken in advance; and
  • specify when the annual leave will commence.

Payment of annual leave

A substantial number of modern awards previously specified that annual leave had to be paid in advance before an employee commenced their leave. A new clause has been added to these awards. Now, if an employee is usually paid by electronic funds transfer, they can continue to be paid during their usual pay cycle whilst taking paid annual leave.

More changes on the horizon

Some modern awards will have inserted a new clause allowing employees with excessive annual leave balances to tell their employer that they will elect to take a period of leave, in circumstances where they have been unable to genuinely reach an agreement with their employer. Transitional arrangements apply and these particular changes will not take effect until 29 July 2017.

On another note, in the coming months it is expected that the FWC will hand down its long awaited decision in respect of the need to make changes to weekend penalty rates in the retail and hospitality industries.