Travel restrictions due to the pandemic have meant that Australians are holidaying less and as a result, taking less annual leave than before the pandemic begun. This has had a knock-on effect for businesses, with employees now owed a significant amount more annual leave compared to early 2020. With border closures set to continue for the foreseeable future, it seems likely that a rise in excessive annual leave balances may put pressure on businesses with increased financial liability, if not managed correctly.
What is annual leave?
Annual leave is leave for holiday and rest purposes and allows permanent employees to be paid while having time off work. Under the National Employment Standards (NES), permanent workers are entitled to annual leave, with full-time employees entitled to a minimum of 4 weeks paid annual leave each year. Annual leave is accrued progressively during the year based on an employee’s ordinary hours of work, and rolls over from year to year with any unused annual leave paid out at the end of employment.
Excessive leave is an accrual of more than 8 weeks’ paid leave or more than 10 weeks’ for certain shift workers.
Why is it important to monitor annual leave balances?
As a business owner, it’s essential to manage annual leave balances to prevent the accumulation of excessive leave. By doing so, employers can avoid owing large sums of money to employees and risking cash flow in the event that those workers end employment. It’s also important to consider that when employees do not take annual leave, it can pose a risk to the health and safety of workers when there isn’t a reasonable work/life balance.
What can employers do?
Most modern awards now include a clause which gives employers the ability to direct employees to take paid annual leave when balances become excessive. In certain circumstances, employees can also provide employers with written notice requesting that paid annual leave be granted.
In the instance that there has been a genuine attempt to come to an agreement between employer and employee to take annual leave but one can’t be reached, a manager may direct the worker in writing to take one or more periods of paid annual leave.
When directing an employee under the award clause to take annual leave, employers need to ensure it:
- is made in writing
- is of no effect if it would result at any time in the employee’s remaining paid annual leave balance being less than 6 weeks when any other paid annual leave arrangements are taken into account
- must not require the employee to take any period of paid annual leave of less than 1 week
- must not require the employee to take a period of annual leave beginning less than 8 weeks or more than 12 months, after the direction is given, and
- must not be inconsistent with any leave arrangement agreed by the employer and employee.
After which the employee must take paid annual leave in accordance with this direction under the award clause that is in effect. Any disputes in relation to excessive leave balances can be dealt with under the dispute resolution procedure in the relevant award.
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