When staff accrue excessive amounts of annual leave, what can an employer do about it?

In some businesses, long-serving employees will accrue an excessive amount of annual leave – in some cases up to three months.

What measures can an employer implement to decrease the amount of accrued annual leave?

 

How to manage accrued annual leave

Some modern awards contain terms where an employer may require an employee to take annual leave (by giving at least eight weeks’ notice) where more than eight weeks' annual leave has been accrued. Such a term is contained in clause 32.7 of the Clerks – Private Sector Award 2020.

This means an employer can direct employees to take the balance of their annual leave, which exceeds eight weeks' worth of accrued leave. Consequently, an employee’s annual leave balance must be at least eight weeks when directed by the employer. The employee, however, can request to take all or any amount of accrued annual leave, subject to reasonable refusal by the employer.

 

Cashing out annual leave

Annual leave can be cashed out if an award or agreement allows it.

  • Certain rules apply when cashing out annual leave:

  • An employee needs to have at least four weeks' annual leave left

  • A written agreement needs to be made each time annual leave is cashed out

  • An employer can't force or pressure an employee to cash out annual leave

  • The payment for cashed-out annual leave must be the same as what the employee would have received if they had taken the leave.


Award and agreement-free employees

Under the Fair Work Act (s94(5)), an employer may require an award/agreement-free employee to take a period of annual leave, but only if the request is reasonable. A legislative note in the Act provides examples of reasonable requests. These include an employee who has accrued an excessive amount of annual leave (e.g., eight weeks or more), or an employer’s business being shut down for a period (e.g., Christmas-New Year close-down).

Under the Fair Work Act (s94), an employer and an award/agreement-free employee may agree to cash out some of the employee’s accrued annual leave. An employee must be left with an annual leave balance of at least four weeks after taking a cash-out option. Each agreement to cash out a portion of annual leave must be in writing and a separate agreement. The amount is equal to the employee’s base rate of pay that would have been payable had the employee taken the annual leave.

 

The bottom line

An employer may direct an employee to take annual leave, subject to the terms of the applicable modern award. An award/agreement-free employee may be directed to take annual leave, subject to the provisions of the Fair Work Act.