By Brigitta Poulos
Most employees are generally eager to take a holiday, however, there are sometimes those who may request to have their annual leave paid out. If any of your employees are covered by a modern award, you should take note of the provisions relating to cashing out annual leave, taking annual leave in advance, and managing excessive annual leave balances.
1. What is cashing out annual leave?
Most modern awards contain provisions allowing employees to cash out up to two weeks of annual leave in any 12-month period; providing that they have:
- signed a written agreement with their employer (if the employee is under the age of 18 years old the agreement must be signed by a parent or guardian); and
- will have at least four weeks of annual leave left after the cash-out takes effect.
The agreement to cash out annual leave must specifically state the amount of leave being cashed out, the amount that will be paid to the employee, and the date that payment will be made. Most awards now provide a template agreement for the employer to use when an agreement has been made for an employee to cash out annual leave.
As part of your record-keeping obligations, you must keep a copy of the agreement for at least seven years.
2. Can my employees take their annual leave in advance?
There may be instances where an employee wants to take annual leave but does not have enough annual leave accrued. In this instance, most modern awards contain provisions allowing employees to take a period of annual leave in advance, provided that the employer agrees in writing.
Such an agreement must state the amount of leave that will be taken as well as the date the leave commences. The agreement must be signed by both the employer and employee (as well as the employee’s parent or guardian if they are under 18 years old). Similarly, to the agreement to cash out annual leave, there is a template agreement in most modern awards which employers can utilise when making such agreements, which must be kept for at least seven years for record-keeping purposes.
So what happens if the employee has not accrued an entitlement to the period of annual leave that was taken as part of the annual leave in advance agreement, and their employment is terminated? In this case, the employer may deduct from any money due to the employee an amount equal to that amount paid to the employee in respect of the period of annual leave that was taken in advance but not accrued.
3. How should I manage excessive annual leave balances?
An excessive annual leave balance is where an employee has accumulated at least eight weeks of paid annual leave.
If an employee has an excessive annual leave balance, and you are unable to come to an agreement with them on how to reduce the employee’s annual leave balance after genuinely trying to reach an agreement, an employer may direct an employee to take a period of annual leave.
A direction to take a period of annual leave must be given in writing. The direction cannot be given less than eight weeks (and not more than 12 months) before the period of annual leave is to commence. The direction cannot require the employee to take a period of paid annual leave of less than one week and cannot result in the employee being left with less than six weeks of accrued paid annual leave.
Employees too can make directions concerning their annual leave if they have had an excessive annual leave balance for more than six months. Where an employee is unable to reach an agreement with their employer, the employee may give a written notice to their employer requesting to take a period of annual leave, which cannot be more than four weeks annual leave. The employer is then obligated to grant the paid annual leave as requested.
4. Should I allow an employee to cash out their annual leave?
Something to consider is whether you should allow an employee to cash out their annual leave. As an employer, you always need to consider your work health and safety obligations owed to your employees. The purpose of paid annual leave is to provide employees with time off work to rest and recoup, without employees needing to worry about their finances. If you’re presented with a request for cashing out of annual leave, consider carefully the impact it will have on the employee, and consider encouraging them to take the time off instead.
For more information on annual leave entitlements and what it means for you, clients should contact the team at HR Assured. If you’d like more information about the benefits of becoming an HR Assured client contact us today for an informal chat.
Brigitta Poulos is a Workplace Relations Consultant at HR Assured who loves helping clients and businesses achieve excellent workplace compliance with their obligations and duties, and interpretation of relevant employment legislation and awards. She particularly enjoys researching and explaining new or ‘hot’ topics in the workplace relations and human resources fields to our clients.