Annual Leave: IR Update

  • September 21st, 2016 at 4:06 pm

New Rules on Annual Leave for Employees Covered by Modern Awards

There have been some recent reforms to the modern award system which applies to all employers covered by the Fair Work Act 2009 (Cth) in relation to the taking and using of leave by employees.

The reforms are the result of lengthy debate in the Fair Work Commission and will provide an increased level of flexibility for both employers and employees where the taking of leave is concerned.

Most mainstream awards covering approximately 1.3 million employees have had these new provisions added.

The changes took effect from 29 July 2016 and they cover:

Cashing out of annual leave – where as long as the following conditions are met an employee may cash out some of their annual leave entitlements;

  • A signed written agreement which specifies the amount of leave to be cashed in, the payment to be made to the employee, and the date the payment is to be made, must be made on each occasion between the employer and the employee
  • The employee must retain a balance of at least four weeks’ annual leave after cashing out any annual leave
  • The amount of leave that can be cashed out at any one time during a 12-month period is a maximum of two weeks’ leave

Managing excessive annual leave balances – excessive annual leave determined under these new rules is at least eight weeks leave (or ten weeks for a shift worker).

Where an employee has accumulated excess leave and no agreement can be reached over the taking of this leave after genuine attempts to reach agreement, the employer can now direct the employee in writing to take annual leave at a future date to be set by the employer.

Under these circumstances at least eight weeks’ notice or more (but not more than twelve months) must be provided to the employee of when the leave will commence.

The employee must retain at least six weeks of paid annual leave after the directed leave is taken.

The employee cannot be directed to take less than one week’s leave.

Taking of annual leave in advance – employees covered under these new provisions may be able to take annual leave before it has been accrued where the employer agrees in writing to this request which contains how much annual leave is being taken in advance, when it will commence and the signatures of both the employer and employee.

Payment of annual leave – Most modern awards previously stated that annual leave had to be paid in advance before the leave commenced.

Under the new provisions an employee who is currently paid by electronic funds transfer may continue to be paid during their normal pay cycle during their annual leave.

General – As with any new changes to the modern award system it is important to closely adhere to all of the conditions attached to the amendments and to ensure that all of the required conditions are met when using these new provisions.

Not all modern awards have been varied and there are still deliberations continuing over the application of these award changes to the maritime and black coal awards so it is important to check if your award has been varied by visiting the Fair Work Commission website.

These amendments will provide more flexibility to both employers and employees where the taking of annual leave is concerned and it will allow employers to reduce excessive leave balances which can continue to grow and increase in accruals that must be accounted for and costed each year.

A summary of this decision entitled 4 yearly review of modern awards – Annual Leave AM2014/47, 2016 FWCFB 3177 is available on the Fair Work Commission website.

National Wage Increase – Additional Information

As you should all be aware by now, the FWC awarded a National Wage Increase of 2.4% taking effect from July 1 2016.

Some points to note in regards to this increase and its effect on employee rates of pay are:

  1. Check your applicable award for the new weekly rate
  • Do not rely on a true addition of the percentage rise – the FWC will mostly round weekly figures up, e.g. the old rate of $714.60 x 2.4% = $17.15 + $714.60 = $731.75, however, the FWC has put the new weekly rate at $731.80
  • Whereas, the old weekly rate of $764.90 is now $783.30 ($764.90 x 2.4% = $18.37 + $764.90 = $783.26, rounded to .30c).
  • There are also instances of rounding down, e.g. one weekly rate rounded down by one cent to equal $799.00 instead of $799.01.
  1. Allowances may also rise
  • Be aware that allowances may also rise, particularly those that are paid as a percentage of the Standard
  • As a result of the wage increase, the applicable standard classification pay level will increase, therefore any allowances based on this Standard Rate will also rise.
  • Some examples of these allowances are:  First Aid Allowance, Industry Allowance, Leading Hand Allowance.
  • At this time, flat rate allowances such as Meal and Tool Allowances, will also rise – you will need to refer to your applicable award for the new rates because these do not seem to increase by the same percentage as the wage increase.

Definitions of Wage Rates:

Base Rate:  The flat hourly rate paid after dividing the applicable weekly wage of the award classification level by 38 hours (the average number of ordinary hours a full-time employee works per week)

Ordinary Rate:  The Base Rate plus any applicable loadings/allowances (e.g. 25% casual loading, Industry allowance) = Ordinary Rate.  This rate is used to determine the percentage rates of some allowances.

Standard Rate:  Based on the minimum hourly wage of a specific classification in your applicable award, (currently $783.30 for this financial year – clerical type awards seem to sit at Lv 2.1), the Standard Rate is used to determine the percentage rates of most allowances.  You will need to check the Definition of the Standard Rate in your award to determine which classification is used to set the Standard Rate.

Always remember, when in doubt, refer to your Award, ensuring you have the latest version of the Modern Awards.

Written by Leigh Bernhardt

Industrial Relations Specialist – FAHRI, PCArb, MIAMA, JP (Qual) QCAT Qld