Changes to modern award provisions for annual leave

As part of their their four- yearly review of modern awards, the Fair Work Commission (FWC) has made changes to a number of awards for annual leave entitlements and the way that annual leave is to be taken. The changes are designed to provide employers with flexibility in managing leave arrangements and prevent cash flow issues with excessive accumulated annual leave. The changes specifically deal with managing excessive accrual of annual leave, payment of annual leave, cashing out annual leave and taking annual leave in advance. Most of the changes took effect as of 29 July 2016.

Excessive Annual Leave

Excessive Annual leave is defined as more than 8 weeks’ paid annual leave (10 weeks for shift workers). The new provisions will allow employers to direct their employees with excessive annual leave to take leave, provided that:

  • Employers must request a meeting with employees beforehand and try to reach an agreement on reduce or eliminate excessive accrual of annual leave.
  • The remaining annual leave entitlement is not less than 6 weeks.
  • The directed leave is no less than 1 week.
  • Employers give 8 weeks notice of the directed leave.

Payment of Annual Leave

Previously, a substantial number of awards required annual leave to be paid in advance of leave commencing. However, an employer now has the choice to pay annual leave as part of an employee’s ordinary pay cycle where payment is made by electronic funds transfer.

Cashing out Annual Leave

Employers can now agree with their employees to cash out an amount of their accrued annual leave, provided that:

  • Each cashing out must be subject to a written agreement between the employee and employer.
  • The amount must be equal to the full amount the employee would have received had they taken the annual leave.
  • The maximum amount that can be cashed out is 2 weeks in any 12 month period.
  • The employee must maintain a minimum of 4 weeks accrued annual leave.
  • If an employee is under 18 years’ of age, the agreement to cash out a particular amount of accrued paid annual leave must be signed by the employee’s parent or guardian.

Taking Annual leave in advance

Most modern awards now allow employees and employers to agree to the taking of annual leave in advance of accrual. However, the agreement must be signed by both the employer and the employee; say how much annual leave is being taken in advance; and specify when the annual leave will commence.


Employers should review the award applicable to their industry and/or employees to determine whether these changes apply to their business. 

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