Employers should be reminded that from 29 July 2016 important changes took effect to paid annual leave entitlements under many modern awards.  As part of the four year modern award review, the Fair Work Commission (FWC) issued its decision on model terms for cashing out annual leave, managing excessive annual leave accruals, taking annual leave in advance, and payment of annual leave.

Cashing Out Annual Leave

Employees are now allowed to cash out accrued annual leave provided that:

  • It is agreed in writing with their employer.
  • They retain at least four weeks of annual leave after cashing out.
  • No more than two weeks is cashed out in any 12 month period.

Excessive Annual Leave

Employers will be able to direct employees with excessive leave accruals (at least eight weeks) to take annual leave if an agreement can’t be reached as to when the employee should take annual leave. The employee must retain a leave balance of at least six weeks and must be given eight weeks’ notice before the leave must be taken.

Taking Leave in Advance

Employees can now request annual leave before it has accrued, provided it is agreed to in writing by the employer specifying how much leave is to be taken and when it is to commence.  An employer may deduct an amount for any annual leave taken but not yet accrued on termination of employment.


A number of awards were amended to remove the requirement that the employer pay for annual leave prior to the employee taking the leave.  The effect of the amendment is that where employees are paid by EFT, they may now be paid their annual leave in accordance with their usual pay cycle, rather than being paid prior to commencing their period of annual leave.

While the changes will provide some welcome flexibility for employers regulated by the Fair Work Act 2009 (Cth) in respect of annual leave, it is important to remember:

  • If a modern award applies to your employees, you should review the new award terms and update any annual leave policies or procedures.
  • If an enterprise agreement applies to your employees, we recommend you seek advice regarding how the new modern award terms may apply to you and your employees.

See which modern awards are affected.