Cashing out annual leave and managing employee leave

Watkins Tapsell Employment Law
Posted on.
By Devanand Saraswati.

From the end of July 2016, the Fair Work Commission made changes to a number of the Modern Awards, which varied the rules about employees and annual leave.

The changes included new rules about cashing in annual leave, taking leave in advance, payment for annual leave, and how employers can manage employees with large leave balances.

If your employees wish to cash out their annual leave, or take leave in advance,  you can agree to these arrangements, provided that you comply with the requirements under your relevant modern award.  In most cases, you must:

  1. Have a written agreement regarding the leave to be cashed out or taken in advance;
  2. Ensure that the employee has at least 4 weeks leave remaining after any agreed cash out of leave;
  3. Not cash out more than two weeks of leave in every 12 months.

If you are concerned that your employees are accumulating large annual leave balances, you may also be able to direct your employee to take leave, provided you comply with the relevant modern award.

Excessive annual leave is defined as more than 8 weeks of leave ( or 10 weeks for a shiftworker).

If you have an employee with “excessive” annual leave, you should in the first instance discuss this with your employee and attempt to come to an arrangement as to how and when they will take their leave to reduce the balance. If you cannot come to an agreement, you may be able to direct your employee to take leave, provided you give them at lease 8 weeks notice in writing of when you will require the leave to start. There are restrictions under each modern award setting out what period of leave must be taken and how much leave the employee must have left after being directed to take leave.

Each Modern Award is different, so you should carefully review your individual situation prior to making any decisions regarding annual leave. If you have questions, or need assistance with managing your employees leave, please contact our experienced Employment Lawyers on 9521 6000 or at

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