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For many employees who are unable to go on leave due to cash flow problems or personal commitments, cashing out their annual leave may be the solution they’ve been waiting for. Last year, the Fair Work Commission (FWC) handed down a decision that allows employees to cash out annual leave if they fall under certain awards or if a registered agreement allows it. This decision will be applicable from the first pay period after 29 July 2016. This article examines the FWC’s decision and assesses how it may affect you as an employee or employer.

The Courts Decision

Sections 92-94 of the Fair Work Act allows for the cashing out of annual leave. The Full Bench of the FWC noted that many registered agreements approved by the FWC contain additional safeguards around cashing out leave. They considered that while the Act contains some minimum requirements around this, there is yet to be a code or supplementary guidelines to this to provide some additional details on how this should work.

The Full Bench allowed the inclusion of a clause relating to cashing out leave in almost 120 modern awards with some additional conditions, as follows:

  • a maximum of 2 weeks’ paid annual leave can be cashed out in any 12 month period;
  • there are to be specific requirements on recording any leave cashed out or any      agreements relating to this;
  • if the employee is under 18, the agreement to cash out leave must be signed by a parent or guardian; and
  • the clause to be inserted will draw the employees attention to the protections in the Fair Work Act relating to undue employer influence and misrepresentation of employee rights.

The Full Bench received submissions from a number of stakeholders on the proposed changes and decided that the introduction of this clause would not undermine the National Employment Standards entitlement to annual leave (as proposed by the union parties). Their decision was based on significant demand for allowing cashing out of leave and the safeguards that will be included to protect employees.

Cashing Out Annual Leave for Employees

As an employee, it will be important to consider whether or not you have been affected by these changes. The Fair Work Ombudsman has a list of all the modern awards where the cashing out leave provisions have been inserted. You will first need to figure out which award you are classified under to determine whether or not the changes apply in your industry.

If you have discovered that the changes do apply, you should speak to your employer about your entitlements and rights under this provision. For example, the Hair and Beauty Industry Award 2010 allows an employee under the award to cash out their annual leave if they have at least four weeks annual leave left after they have cashed out and they have a signed written agreement with their employer. This agreement states the amount of leave being cashed out, the amount they will be paid and the date of when it will be paid.

The award also requires the payment for cashed out annual leave to be equal to what the employee would have been paid had they taken the leave. As mentioned in the above section, the employee also can’t cash out more than two weeks each 12-month period.

What is the Impact on Employers?

If you are an employer, you will need to know what awards apply to your employees and whether the cashing out provisions have been inserted into those awards. You will need to understand your rights and obligations in cashing out leave and keep clear records of this. Employers need to keep a copy of the agreement they required the employee to enter into to cash out the leave and record how much was paid, the amount of leave cashed out and when the payment was made.

You will need to be mindful of refraining from forcing or pressuring any employee to cash out annual leave. All employees are protected by part 3-1 of the Fair Work Act, which includes general protections as well as preventing undue employer influence and misrepresentations.

Key Takeaways

The cashing out provisions in modern awards will affect millions of Australians, both employees and employers alike. Understanding your rights and obligations now will put you in a good position when it comes to dealing with the new provisions. Employees need to understand their rights under their award and employers need to be mindful of their interactions with employees about this issue. If you are unsure if the cashing out decision will affect you, contact a specialist lawyer at LegalVision who can help guide you through the process on 1300 544 755 or fill out the form on this page.


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