The cashing out of annual leave under modern awards has recently been clarified by the Fair Work Commission (FWC). Despite provisions in the Fair Work Act 2009 (Cth), few of the awards introduced in 2010 contained provisions which granted employees and employers flexibility in managing annual leave entitlements. As part of the inaugural award modernisation process, the FWC released its final decision in June 2016 in which it finalised annual leave reforms through the introduction of model clauses.

The reforms took effect on 29 July 2016, meaning that employees covered by modern awards are now entitled to request that their accrued annual leave entitlements be cashed out. Of the 122 industry and occupation awards, clauses authorising these changes have been inserted into 112 awards, affecting over two million Australian employees.

Prior to the reforms, only employees covered by the Seafood Processing Award 2010 were entitled to request their leave be cashed out.

The FWC has, however, imposed the following restrictions on an employee’s ability to cash out annual leave:

  • a maximum of two weeks per year may be cashed out by an employee
  • the employee must retain at least four weeks of accrued annual leave after the requested leave has been cashed out
  • the agreement between the parties to cash out must be documented in writing and set out the amount to be cashed out and when payment will be made
  • the employer must keep a copy of any agreement as part of the employee’s record.

When cashing out annual leave, employers must pay the employee their normal pay-rate inclusive of loading rates.

Importantly, employers may refuse the employee’s request however, no further guidance has been provided on when an employer may validly refuse. Employers must not coerce or pressure their employees to cash out their annual leave or make misleading representations about the employee’s workplace rights.

Additional reforms permit employers to direct employees to take annual leave if they have accrued an excessive amount of leave (above eight weeks) and allow employees to take annual leave in advance of it being accrued.