Are your staff asking to cash out annual leave? There are some important rules to remember before paying out annual leave.
Table of Contents
- What is Annual Leave in Australia?
- How Many Days of Annual Leave Are You Entitled to?
- How to Calculate Annual Leave in Australia
- Annual Leave Loading
- Implications of Taking Annual Leave
- Can an Employer Refuse Annual Leave?
- Accrued Annual Leave
- Accrual of Annual Leave
- Payment for Accrued Annual Leave
- Cashing Out Annual Leave
Annual leave is a crucial aspect of employment in Australia, offering employees an opportunity to take a well-deserved break from work, recharge, and spend quality time with family and friends. In this blog, we will delve into the intricacies of annual leave in Australia, addressing questions such as how many days of annual leave you are entitled to, what annual leave means, how to calculate leave, the implications and benefits associated with it, and cashing out annual leave. Additionally, we will explore the concept of annual leave loading, situations where employers might refuse annual leave, and the payment for accrued annual leave.
What is Annual Leave in Australia?
Annual leave, often simply referred to as "leave," is a paid absence from work provided to employees by their employers. It allows employees to take time off work for various purposes, including vacations, rest, personal matters, or family commitments, without losing income. In Australia, the Fair Work Act 2009 governs annual leave, setting out the rights and responsibilities of both employers and employees.
How Many Days of Annual Leave Are You Entitled to?
The amount of annual leave you are entitled to in Australia depends on various factors, including your employment status, the length of your service, and the terms of your employment contract. Here's a breakdown of annual leave entitlements:
a. Full-time Employees: Full-time employees typically receive four weeks of paid annual leave per year. This equates to 20 working days if you work a standard five-day workweek.
b. Part-time and Casual Employees: Part-time and casual employees are entitled to annual leave on a pro-rata basis. This means that the amount of annual leave you receive will be calculated based on the number of hours you work compared to a full-time employee. For example, if you work three days a week, your annual leave entitlement would be three-fifths (3/5) of a full-time employee's entitlement.
c. Long Service Leave: Some states in Australia also provide long service leave in addition to annual leave. The eligibility criteria for long service leave vary between states, but it is typically accrued after a certain number of years of continuous service with the same employer.
How to Calculate Annual Leave in Australia
Calculating your annual leave entitlement can be a straightforward process. To calculate the number of days or hours of annual leave you have accrued, you can use the following formula:
(Number of weeks worked / Number of weeks in a year) x Total annual leave entitlement
For example, if you are a part-time employee who works 24 hours per week and is entitled to four weeks (20 days) of annual leave, the calculation would be as follows:
(24 hours/week x 48 weeks) / 52 weeks = 22.15 days of annual leave
In this scenario, you would be entitled to approximately 22.15 days of annual leave.
Annual Leave Loading
Annual leave loading is an additional payment or percentage added to your ordinary pay when you take annual leave. This additional amount is designed to compensate for the fact that you are not receiving overtime, penalty rates, or other allowances during your time off work. The Fair Work Act 2009 does not mandate annual leave loading, and its inclusion in employment contracts is subject to negotiation between employers and employees.
The percentage of annual leave loading can vary depending on the industry and employment agreement but typically ranges from 17.5% to 25% of your ordinary pay. Employees covered by modern awards or enterprise agreements may have annual leave loading specified in their employment conditions.
Implications of Taking Annual Leave
Taking annual leave is an essential part of maintaining a healthy work-life balance. However, it is vital to consider some implications when planning your leave:
a. Notice and Approval: Most employment contracts require employees to give their employer notice when requesting annual leave. The notice period may vary, so it's essential to check your employment agreement. Employers also have the right to approve or deny leave requests based on operational requirements and the needs of the business.
b. Impact on Work: Taking annual leave can impact the workflow and productivity of your workplace. It's advisable to plan your leave in a way that minimizes disruption to your colleagues and employer.
c. Pay During Leave: During your annual leave, you continue to receive your regular pay, including any applicable annual leave loading, as agreed upon in your employment contract or relevant award.
Can an Employer Refuse Annual Leave?
In general, employers have the right to approve or deny annual leave requests. However, they must do so in accordance with the Fair Work Act 2009 and any applicable employment agreements. Employers cannot unreasonably withhold approval of annual leave requests. What constitutes "unreasonable" can vary based on factors like operational needs, the size of the business, and the length of the requested leave.
It's essential for both employers and employees to communicate and plan annual leave requests in advance to minimize conflicts and ensure smooth operations.
Accrued Annual Leave
Accrued annual leave refers to the leave entitlement that an employee has earned but has not yet used. Employees accrue annual leave during their employment, and the accrued leave can be taken at a later date. The Fair Work Act 2009 outlines rules for accruing and taking annual leave, including the maximum amount of leave that can be accrued.
Accrued leave can be useful for longer vacations, personal emergencies, or when transitioning to part-time work. Employees should be aware of their accrued leave balance and the rules governing its use.
Accrual of Annual Leave
Annual leave accrues progressively during your employment based on the number of hours or days you work. The Fair Work Act 2009 stipulates that annual leave accrues from the first day of your employment, and the rate at which it accumulates depends on your work pattern (full-time, part-time, casual).
For example, if you are a full-time employee with a four-week annual leave entitlement (20 days) and work a standard five-day workweek, you will accrue 1.67 days of leave each month (20 days / 12 months).
Payment for Accrued Annual Leave
When you decide to take accrued annual leave, your employer is legally required to pay you the equivalent of your normal wages during your leave. This includes any applicable annual leave loading as per your employment contract or award.
The payment for accrued annual leave should be made before your scheduled leave period begins. This ensures that you continue to receive your regular income during your time off work.
Cashing Out Annual Leave
Firstly, you must review the employee’s modern award to check that cashing out leave is explicitly allowed.
Most awards do allow for excess annual leave to be paid out, and we give you the general rules here – but you need to check the relevant award for special regulations before agreeing to cash out leave.
Common Rules for Cashing Out Annual Leave
- The leave must be paid at the same rate as if the employee takes the leave. That means you must pay leave loading if it applies, and super is always payable on cashed out annual leave.
- The employee must have at least four weeks of leave left available after paying out any excess amount.
- You can't pay out more than two weeks of leave per year.
- While leave accrues as usual when an employee takes leave, you don't need to accrue leave on cashed out leave.
- You need to have a written agreement with the employee, stating the number of hours being paid, the total amount and when you will pay it.
- Remember to check the employee's award first and keep all records and calculations!
You Can Direct Employees to Take Excess Leave
You can't force an employee to cash out leave, but you can ask an employee to take leave in some circumstances. If you have employees accruing a lot of leave, check the award for guidance. For example, some awards allow an employer to direct an employee to take one week or more of leave if they have more than eight weeks accrued, give at least six weeks’ notice, and leave at least six weeks of leave available.
Remember, annual leave is paid out when an employee leaves your business, so it’s good to keep an eye on how much is owing and not let too much accrue. Also, employees should be taking leave regularly for their health and wellbeing.
If you need help, talk to us, and we can review your payroll, leave accruals and modern awards to help manage employees’ annual leave.