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Annual Leave reforms may hide some pitfalls

August 30th, 2016

The end of July marked a time of significant change in the way Australians can approach their annual leave. And while the changes are designed to maximise flexibility for both employers and employees, there are some pitfalls both parties should consider.

The changes to clauses 112 of the 122 Australian workplace awards by the Fair Work Commission means employees can now cash out a proportion of their annual leave, take annual leave in advance and can also be forced to take a break if they have accrued excessive leave.

The Australian Chamber of Commerce and Industry lobbied for these changes, but while they do provide employers more flexibility in how they deal with their employees’ leave entitlements, both employers and employees should be cautious about rushing to take advantage.

Under the new rules, employees can now cash out two weeks of their annual leave per 12 months, provided they still have four weeks of leave `in the bank’. Both employer and employee must agree in writing to the payment, which must not be less than it would have been had the leave been taken when the payment was made.

The Australian Council of Trade Unions spoke for many when it issued a statement expressing its concern about the treatment of annual leave as a commodity, as opposed to an entitlement which is designed to aid in the health and well-being of employees.

Annual leave is meant to be an opportunity to switch off, recharge and connect with friends and family and is recognised by the Australian Medical Association as a factor in reducing stress.  Stress and burnout are issues which should not only worry employees, but also employers. Employees who are stressed, overworked and anxious are also less productive, and more prone to absenteeism.

In 2014 the Global Benefits Attitudes survey of more than 22,000 workers across 12 countries found that half of employees reporting high stress also said they were disengaged from their work. Highly stressed employees also took more sick days than those reporting low stress. And the largest cause of stress overall was found to be a perceived lack of `work-life balance’.

Taking a break can refresh the mind and help rekindle enthusiasm for a job, and lead to a happier and more productive staff member. Another change implemented by the Fair Work Commission allows employees to take annual leave in advance if both parties agree to it in writing.

While the provision will be useful for some employees who may not otherwise have been able to attend an important event, taking large batches of leave in advance can mean an employee then has long stretches with no breaks to look forward to on the horizon.

And for the employer, allowing a worker to take leave in advance can turn into an administrative headache if that employee leaves the company soon after. Employers would be entitled to recoup what is owed, but if an employee isn’t co-operative that might mean obtaining a court order.

Another significant change to the rules is the way employers can deal with employees who have accrued excessive annual leave – defined by the Fair Work Commission as eight weeks or more.

The Fair Work Commission has allowed a 12-month buffer for this rule, but thereafter employers will be able to direct employees eight weeks-notice in writing that they must take leave.

A much better approach might be for employers to gain an understanding of why their staff are so reluctant to leave the office.

A survey by Jones Donald Strategy Partners for Tourism Australia in 2010 found a major reason for many so-called `leave hoarders’ was their manager’s failure to assign another staff member to cover for their absence, leading to a build-up of work to do both before and after the break is taken.

Another reason cited was a job insecurity – fear that if they took leave they might be considered dispensable.

These factors could be overcome with a nurturing workplace where staff enjoy high morale and have confidence in their value, which may negate the need to force workers to take leave.


This publication was issued by First Super Pty Ltd (ABN 42 053 498 472, AFSL 223988), as Trustee of the First Super superannuation fund (ABN 56 286 625 181). It does not consider your personal circumstances and may not be relied on as financial advice. Content was accurate at the date of issue, but may subsequently change.