Think you’d like to cash out annual leave? Read this first.

 Australia’s main holiday period has come and gone but as 2017 gets fully underway, it is important for employers and employees alike to be aware of changes to rules on cashing out, taking and paying annual leave.

Australia’s national workplace tribunal, the Fair Work Commission, has added to or varied annual leave terms in most modern awards as part of its review all modern awards, which takes place every four years. 

The majority of those changes took effect in July last year, while one will start in July this year. They apply to most workplaces covered by modern awards and are also relevant to workplaces bargaining for new enterprise agreements, which will have to pass the “better off overall test” against the varied modern award/s. 

Cashing out accrued annual leave

Following the Commission’s decisions during the four-yearly review, most modern awards now allow employees to cash out up to two weeks’ annual leave in any 12 month period, provided they will be left with a balance of at least four weeks’ annual leave. 

Employers and employees must both agree in writing to each cashing out, and employees cannot be paid less than what they would have received had they taken the leave at the time.

Managing excessive accrued annual leave

New provisions on taking excessive accrued annual leave – defined as more than eight weeks’ annual leave, or more than 10 weeks for shift workers – are also now in many modern awards.

They allow an employer who has genuinely tried to reach agreement with an employee on reducing excessive annual leave to direct the employee in writing to take a period or periods of leave. 

The directed leave cannot be for less than a week and cannot reduce the employee’s annual leave balance to less than six weeks.

Employees directed to take annual leave can still put in a leave request – which, under the Fair Work Act, an employer cannot unreasonably refuse – if they would prefer to take their leave at a different time. 

If the requested leave is approved and would reduce the employee’s accrued balance to below six weeks, the employer’s written direction will no longer apply.

From 29 July this year, another excessive accrued annual leave provision will take effect in many modern awards. It will enable employees who have had an excessive balance for more than six months, and have genuinely tried to reach agreement with their employer on reducing it, to make a written leave request. 

The employer will have to grant the request provided conditions are met, which, again, include that the employee’s annual leave balance does not fall below six weeks. 

Changes to payment

In a change to how leave is paid, employers who pay their employees via electronic transfer no longer have to pay annual leave before it starts. Instead, they can pay it as part of the usual pay cycle.

Advance leave and termination

Most modern awards now also enable employees to take annual leave in advance of accruing it. To do so, an employee and employer both have to sign a written agreement stating the amount of leave to be taken and the date it will start. 

If employment ends before the employee accrues all the leave advanced, the employer can deduct the leave taken but not accrued from money owed on termination.

Tools and resources

The Commission has developed template agreements for the cashing out of annual leave and taking annual leave in advance. Employers do not have to use these but doing so will ensure they comply with the modern award requirements.

Further information on changes to annual leave provisions in modern awards is available on the Fair Work Commission’s website. Information on annual leave entitlements under modern awards and the National Employment Standards can be found at or in the Fair Work Ombudsman’s annual leave and National Employment Standards fact sheets.

This sponsored content was brought to you by Fair Work Commission. 

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