This is the second in our series of articles covering the 11 National Employment Standards, or NES. These are the minimum terms of employment that apply to all workers in Australia, whether they are covered by an Award or not.

Whilst employers and employees can add to or supplement the NES, they cannot provide for  or negotiate conditions that are less than the national minimum wage or the NES. In other words, the NES cannot be excluded by any employer or employee.

NES #2: Annual Leave

There’s a lot for businesses to take in as far as annual leave is concerned. Our overarching advice is to have a clear Annual Leave policy in place, and to be aware of your obligations under any Awards or Agreements covering employees within your business.

What is Annual Leave? What are the entitlements?

Annual leave is, for fulltime and part time employees, a paid leave entitlement of 4 weeks per annum, based on the number of hours per week that are ordinarily worked. For example, a fulltime employee would receive 152 hours (38 x 4) of annual leave per year, whereas a part time employee working 20 hours per week would receive 80 hours (20 x 4) of annual leave. Shift workers may get up to 5 weeks of annual leave per year – the information relating to shift workers can be found in the relevant Award.

A casual employee has no entitlement to paid annual leave. Rather, they are paid a casual loading (usually 25%) on top of the normal hourly rate of pay, to compensate them for this and some other types of paid leave (though not Long Service Leave).

Annual leave starts accruing on day 1 of service, and accumulates gradually during the year. Any unused annual leave will roll over from year to year. That said, annual leave does not generally accrue when an employee is on unpaid leave.

Taking Annual Leave

An employee needs to request to take annual leave before going on leave, and it needs to be taken at a mutually agreed time. That said, an employer can only refuse an employee’s request for annual leave if the refusal is reasonable (for example, it’s a particularly busy period, or other staff will be off on leave at the same time). The process for requesting annual leave is often set out in an Award or Agreement, in a company policy or in a contract of employment.

There’s no minimum or maximum amount of annual leave that can be taken at a time. Provided both parties agree, an employee can take a part day, single day or a number of days or weeks off.

Directing an employee to take leave

An employer can generally only direct an employee to take annual leave in specific situations. It may, for example, be allowable when:

  • the business is closed during the Christmas and New Year period, or when
  • an employee has accumulated “excess” annual leave.

The rules about the circumstances under which you can direct an employee to take annual leave are generally set out in awards and Agreements. Be sure to check the details as terms differ between Awards and Agreements.

Generally, an annual leave balance is considered ‘excessive’ if an employee has more than:

  • 8 weeks of annual leave, or
  • 10 weeks of annual leave if they are a shift worker.

However, there are minimum requirements (usually 4 weeks) in terms of notice to give to an employee, and they are ordinarily required to retain a balance of at least 6 weeks. Importantly, accrued leave can’t be lost just because an employee hasn’t used it within a stipulated timeframe.

Depending on business requirements and applicable Award provisions, employers may be permitted to close down during quiet periods, for example over Christmas/New Year, and require their staff to take annual leave during this time. Be sure to check applicable Awards and/or Agreements (note that some Awards to not provide for a close down period).

In relation to employees not covered by an Award or Agreement, the Fair Work Act says that if a requirement is “reasonable” you can require that these employees take a period of annual leave. Requiring staff to take leave over a close down period is even given as an example of a “reasonable” condition.

Cashing Out Annual Leave

Finally, an employee may also be able to request that their annual leave is “cashed out”. Some (but not all) Awards and Agreements allow this, so you should check the Award / Agreement in the first instance. Award-free employees may agree with their employer to cash out annual leave at any time. However, whether or not an employee is award and agreement-free, the following applies:

  • the employee must retain at least 4 weeks annual leave
  • there must be a written agreement between the employee and employer on each occasion, and
  • the payment for the cashed out leave has to be at least the amount that the employee would have been paid if they took the leave.

An Award or Agreement may also limit the amount of annual leave an employee can cash out or the timeframe in which it can be cashed out. For example, in most Awards, the maximum amount of accrued annual leave that may be cashed out in any 12 month period is 2 weeks. Further, a business can determine within their policy whether or not cashing out of leave will be allowed.

This article provides general information only and is not legal or formal advice. To the best of our knowledge, information is correct at the time of writing. If you need assistance that takes account of the specific circumstances of your business, let us know.