Managing excessive annual leave in the workplace
COVID-19 has certainly disrupted the way we work. We’re at home more, digitising our meetings and ensuring that we’re up to date with our requirements and obligations. Along with the ongoing ‘adapting’ and ‘pivoting’, the current climate makes it very difficult to travel. As a result, many companies are finding their employees are accruing an excessive amount of annual leave – an unideal situation for both employer and employee.
With the most recent updates put in place from the Fair Work Commission, most modern awards now provide employers with the option to ‘direct’ employees to take paid annual leave if they meet the criteria in their specific award agreement.
What counts as excessive annual leave?
Under the modern award agreement, an employee has an excessive leave accrual if:
• The employee has accrued more than 8 weeks paid annual leave or
• For a shift worker if they have accrued more than 10 weeks of paid annual leave.
It’s important to note that every industry is bound by a different award. To find the specific information on the award that applies to you or your business, we suggest referring to the Fair Work Commission.
What’s the problem with excessive annual leave?
As human beings, it’s important that we switch off and take time away to recoup and recover from work. We all know that vacay feeling, right? Working for extended periods of time can have a serious impact on an employee’s health, both physically and mentally. And, overworking can lead to poor performance, and poor performance can impact a business as a whole. So, what exactly does poor performance look like? You might start to notice these tell-tale signs:
heightened emotional responses
lack of professionalism
poor customer interactions
poor mental health (through stress or anxiety)
pessimistic behaviour
laziness
lack of communication.
Yikes. No business owner would want their employees behaving like this, right? Say goodbye to a positive working environment and productivity.
Don’t forget the financial burden too
Along with the mental health of employees, excessive annual leave can place a significant amount of financial weight on a business owner. It’s important to note that when leave is taken or paid out, the rate of pay is the current amount at the time the leave is taken or paid, not the time at which it was accrued.
As a result, this becomes an extra up-front cost for the employer reducing any potential cost savings e.g. from not using casual employees as relief staff. Oh, and untaken annual leave is also recorded as a liability on balance sheets.
Why does excessive leave happen?
Take the current situation right now – with the restrictions and lockdowns in place, many Australian employees simply aren’t travelling like they normally would. As a result, Aussie workers are banking their annual leave hours.
However, it’s also important to consider that some workplaces unintentionally create an environment where taking annual leave isn’t encouraged. With insufficient resources, lack of manpower and reliability on certain employees in certain roles, often you’ll find a culture of overworking. Managers pressure their employees to not take annual leave due to the inability to cope with them being absent. For some, it’s easier to avoid going on holiday so they don’t have to face the stress and pressure when they come back into the office.
Don’t forget, we’re in uncertain times and other causes of excessive leave accrual may be due to the genuine fear of job security. Employees who are worried about their employment may ‘hoard’ their leave to provide themselves with a large payout if their industry is shut down due to pandemic restrictions or if they are let go.
As an employer, what can I do?
For your sake, it’s worth keeping on top of your employee’s annual leave and keeping open communication with your teams – try and reach an agreement on how to reduce or eliminate the excessive leave accrual. One way of achieving this is by your organisation impimenting a shutdown period (eg. Christmas) or by 'suggesting' employees take leave however you can not demand them to take leave unless they have an excessive amount. If an agreement is unsuccessful the employer can direct an employee to take one or more periods of paid annual leave.
However, a direction under the award clause to take annual leave;
must be in writing
is of no effect if it would result at any time in the employee’s remaining paid annual leave balance being less than 6 weeks when any other paid annual leave arrangements are taken into account
must not require the employee to take any period of paid annual leave of less than 1 week
must not require the employee to take a period of annual leave beginning less than 8 weeks or more than 12 months, after the direction is given, and,
must not be inconsistent with any leave arrangement agreed by the employer and employee.
The employee must take paid annual leave following this direction under the award clause.
Can annual leave be cashed out?
Some awards and registered agreements allow annual leave to be cashed out – award and agreement-free employees can negotiate with their employer to cash out annual leave at any time. However, in all cases, the following applies:
the employee must retain at least four weeks of annual leave
there must be a signed, written agreement with their employer on each occasion (that outlines the amount of leave being cashed out, the amount they will be paid and the date it will be paid)
the payment for any cashed-out leave has to be the same as what the employee would have been paid if they took the leave.
It’s important to note that as an employer, it’s unlawful to force (or try to force) an employee to make (or not make) an agreement to cash out annual leave. And, if there are any disputes, it’s best to refer to the dispute resolution procedure in the award.
For further information, we suggest referring to Fair Work Australia. Specifically, their annual leave fact sheet and guide on directing employees to take annual leave.
