Q. One of our employees wants to take annual leave on half pay for an extended holiday. Our contracts of employment and our company leave policy don't refer to this as a condition of employment. Can an employee request annual leave on half pay? If not, is this a condition that could be a term of an enterprise agreement?

This question was recently answered by our workplace advice line.

A. Whether an employee can take annual leave on half-pay is subject to the provisions of the Fair Work Act. 

An employer would need to refer to the Fair Work Act (award/agreement-free employees), or the applicable modern award (where relevant).
 

Award/agreement-free employees

In the case of award/agreement-free employees, r2.03 of the Fair Work Regulation 2009 provides that an employer and an award/agreement-free employee may agree to the provision of ‘extra annual leave in exchange for foregoing an equivalent amount of pay’. Such an arrangement may also be agreed upon between the employer and an award/agreement-free employee in the case of personal/carer’s leave.
 

Award-covered employees

Most modern awards don't permit the taking of annual leave on half-pay. An exception is the Mining Industry Award 2020 (cl. 22.11).

Section 90(1) of the Act states that if an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in that period. This means the employee is paid at their ordinary weekly hours for the period of annual leave, which would prohibit an arrangement whereby an employee takes extra leave on half-pay. In addition, the applicable modern award or enterprise agreement should be considered. 

While the Act provides that terms relating to the taking of annual leave may be included in a modern award or an enterprise agreement (s93), the applicable award or agreement must make a specific provision to allow for such an arrangement.


Enterprise agreements

An enterprise agreement may contain terms that permit taking extended annual leave on the equivalent half-pay, even where the applicable modern award does not permit such an arrangement. This is because the arrangement is permitted by the Fair Work Regulation. 
 

Alternative arrangement

A possible alternative that does not appear to breach the National Employment Standards is where an employee is granted annual leave on full pay for the first half of the absence, while the remainder of the absence is employer-approved leave without pay. This would result in the same amount of pay for the extended period of absence.

It should be noted that under the Fair Work Act (s22) leave without pay does not count as service for accrual purposes under the National Employment Standards. This would need to be explained to the employee as it may influence their decision to accept such an arrangement.
 

The bottom line

While annual leave on half-pay is permitted in the case of an award/agreement-free employee, the terms of an enterprise agreement may also permit annual leave on half-pay. However, modern awards generally do not permit taking annual leave on half-pay. 
 

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Disclaimer: While all due care has been taken in the preparation of this information, it is believed to be accurate but no warranty of accuracy or reliability is given and no liability is accepted for errors or omissions or loss or damage suffered as a result of a person acting in reliance thereon. This information is not legal advice. If a legal opinion is sought please contact your legal advisor.