A win for employers - changes to annual leave provisions

The Fair Work Commission (FWC) Full-Bench has handed down sweeping changes as part of the four yearly reviews that will affect the Annual Leave provisions of all Modern Awards. The changes will affect over 1.8 million people currently covered under Modern Awards.

The proposed changes have been hailed as a win for employers, giving them the power to reduce leave liability on their balance sheets, save money, and have more flexible leave arrangements with their employees.

The union movement has slammed the changes, believing low paid workers with limited bargaining power will be forced to cash out leave and never have adequate holidays again. 

What is changing?

1.    Cashing Out Annual Leave is now Possible

Previously it has been unlawful to cash out Annual Leave for employees covered by Modern Awards. A clause enabling Annual Leave to be cashed out will now be added to all Modern Awards, enabling workers to elect to receive cash instead of taking their leave.

Specifically Annual Leave will now be able to be cashed out if:

• The Annual Leave is no more than two weeks per twelve month period; and
• The employee has accrued an excess of four weeks Annual Leave.

The ability to cash out Annual Leave is already in place for any worker who is Award-Free, provided that no less than four weeks of accrued leave is retained.  There also may be employees who currently have this provision under an Enterprise Agreement (EA), and these arrangements remain in place for both these groups of workers.

2.     Directing Excessive Annual Leave to be Taken

Under the proposed 2015 changes, organisations with employees covered by Modern Awards will now be able to direct those staff to take period(s) of ‘excessive Annual Leave accrual’.  ‘Excessive’ is deemed as eight weeks for non-shift workers and ten weeks for shift workers.

Direction to take the excessive leave can occur if:

• A genuine agreement cannot be reached on how to reduce or eliminate excessive Annual Leave;
• Employees are given a minimum of eight weeks’ notice of the directed leave; and
• Employees retain a balance of no less than six weeks Annual Leave.

Award-Free workers can already be directed to take Annual Leave and employees covered under an Enterprise Agreement, may be directed where provisions are in place.  In both of these situations, these conditions will not change, as long as it is agreed by both parties and the direction is seen as reasonable.

3.     Annual Leave in Advance and Deduction from Termination Pay

The FWC has also proposed changes that will allow employees to take Annual Leave in advance of accruing the leave entitlement. Whilst this may cause some businesses a headache, the FWC has added provisions that permit the employer to deduct any monies owing from a staff member’s termination pay, should the employment end before the ‘negative’ leave is accrued. 

4.     When to Pay Annual Leave

Currently fifty-one Modern Awards require the employer to pay Annual Leave as a lump sum prior to the commencement of the leave.

The proposed changes will now provide organisations with the option to pay staff in accordance with their usual pay cycle.  It is anticipated this will help relieve the cash flow burden for many businesses, as well as help reduce the administrative hassle particularly in busy periods such as shutdowns and at peak holiday times.

What Action Should Employers take?

Whilst no date has been released for the implementation of the Full Bench decision, the changes will go through, therefore organisations will need to review current policies and procedures to ensure they can take advantage of the impending changes, and will want to re-negotiate terms with Award-Free employees and within Enterprise Agreements. 

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