Annual leave under the national employment standards
The entitlement to Annual leave under the National Employment Standards (NES) can be found in Section 87 of the Fair Work Act 2009 (the Act).
Entitlement to annual leave
An employee, other than a casual employee, is entitled to a minimum of four weeks of paid annual leave for each year of service. Shiftworkers are entitled to five weeks paid annual leave. For an award/agreement free employee, the Act defines shiftworker as an employee who:
- is employed by a business in which shifts are continuously rostered 24 hours a day for 7 days a week
- and is regularly rostered to work those shifts; and regularly works on Sundays and public holidays or the employee is in a class of employees prescribed by the resolutions as shiftworkers for the purpose of the National Employment Standards.
An award/agreement covered employee qualifies for the shiftworker entitlement where the employee meets the definition of shiftworker specified in the applicable award/agreement.
Members who have an agreement in place that defines shiftworker in a manner that is different from the Act are encouraged to seek confirmation of an employee’s entitlement to the additional week of paid annual leave.
Annual leave accrual
Paid annual leave accrues progressively according to an employee’s ordinary hours of work and accumulates from year to year. Annual leave does not accrue on overtime hours.
For example, if a modern award states an employee’s ordinary hours are 38 hours per week and an employee works 40 hours per week, paid annual leave will accrue on 38 hours and not on the additional two hours of work.
Note: If an employee’s award, agreement or contract of employment, states ordinary hours are more than 38 hours per week, members are encouraged to seek assistance to determine the annual leave entitlement.
When does annual leave accrue?
Annual leave accrues during the following periods:
- paid annual leave
- paid personal leave
- paid carer’s leave
- paid compassionate leave.
- paid long service leave (not on termination). It accrues on an hourly basis, based on the ordinary hours of work.
When doesn’t annual leave accrue?
Paid annual leave does not accrue on periods of unpaid leave.
Payment of annual leave
Under the NES, an employee is entitled to be paid annual leave at their base rate of pay.
The base rate of pay does not include:
- incentive-based payments and bonuses
- monetary allowances
- overtime or penalty rates
- any other separately identifiable amounts.
Modern awards or agreements may prescribe additional payments during annual leave, including annual leave loading or penalty rates.
If an employee has a period of unused accrued annual leave at the time of termination, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave. There are conflicting views as to whether this includes annual leave loading. Please contact CCI’s Employee Relations Advice Centre on (08) 9365 7660 for more information.
Members are encouraged to check any applicable award, agreement, contract and/or company policies to determine any annual leave related additional entitlements including annual leave loading.
Taking annual leave
Annual leave may be taken for a period agreed between the employer and employee. There is no minimum or maximum limit on the amount of leave that an employer may authorise the employee to take. An employer must not unreasonably refuse to agree to a request by an employee to take paid annual leave.
Requiring an employee to take annual leave
An award or enterprise agreement may include terms requiring an employee to take annual leave where the requirement is reasonable. Similarly, an award/agreement free employee may be required to take paid annual leave where the request is reasonable.
A requirement to take annual leave may be considered reasonable if:
- the employee has accrued an excessive amount of paid annual leave or
- the employer’s business is being shut down for a period (e.g. between Christmas and New Year).
Importantly, an employer cannot force or direct an employee to take annual leave if the business is encountering financial difficulties and/or does not have enough work except where the relevant industrial instrument provides the employer with the ability to direct. However, a period of annual leave may be mutually agreed in such circumstances.
Cashing out of annual leave
Unused accrued annual leave may only be cashed out in the following circumstances:
- If the relevant employee is covered by an award or enterprise agreement that includes provision for the cashing out of paid annual leave
- The employee is award and agreement free.
In relation to the above circumstances, any such cashing out of paid annual leave can only occur provided that:
- the employee’s remaining annual leave balance is not less than four weeks;
- on each occasion the employer and employee agree in writing; and
- the employee is paid at least the full amount that the employee would have received had the employee taken the leave.
If an award/agreement covered employee cannot cash out annual leave, an employer may approve the request but will technically be breaching the award (which attracts a maximum $63,000 penalty per breach for body corporates).
For more information, contact the Employee Relations Advice Centre on (08) 9365 7660 or email email@example.com.