Taking annual leave regularly – the “win-win” scenario for employers and employees
Most countries around the world have employment laws that mandate employers to provide a certain number of days off to their employees every year. It could be paid or unpaid vacations. However, in some countries, like the US, the law does not require employers to grant any vacation or holidays at all.
In Australia under the National Employment Standards (NES) an employee (other than a casual employee) is entitled to four weeks of paid annual leave for each year of services with the employer. An employee classified as a “shiftworker” is entitled to five weeks paid annual leave. An employee’s entitlement to annual leave accrues on a continuous basis according to the number of ordinary hours they work.
Not having holidays can have a negative impact on people’s health and wellbeing. On the other hand, high accrued leave balances create an issue for employers because it gives rise to a liability. The unused annual leave must be paid out at an employee’s base rate at the time of termination. The base rate can be significantly higher at termination than at the time the leave was accrued.
Employers have several options to reduce this liability:
- Direction to take annual leave
If an employee has accrued an excessive annual leave an employer can direct an employee to take annual leave but only when an award or registered agreement allows it and the requirement is reasonable. An annual leave balance is considered ‘excessive’ if an employee has accrued more than 8 weeks of annual leave, or if they are a shiftworker, more than 10 weeks of annual leave.
- Cashing out leave
Some employees may agree with their employer to cash out annual leave at any time. However, the employee must retain at least four weeks annual leave and the agreement must be in writing. Also, It is unlawful for an employer to force (or try to force) an employee to make (or not make) an agreement to cash out annual leave.
- Shutting down over Christmas and New Year
Some businesses shut down for an extended period between Christmas and New Year due to the nature of a business. During this time staff is required to take annual leave. This requirement is considered “reasonable” if the employees are not covered by an award or enterprise agreement. If employees are covered by an award or an agreement an employer must follow the leave provisions in the specific agreement.
If you require any further information, please contact our team of tax accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.