Today, we’d like to bust some of the most common annual leave related myths our team of HR experts here at Better HR regularly encounter.
Fact: Annual leave is one of the ten National Employment Standards (NES)
The vast majority of employees in Australia are covered by the Fair Work Act 2009. These employees accrue annual leave in accordance with the National Employment Standards, which are an important part of that Act. As a minimum, permanent full-time employees must accrue at least four weeks of annual leave each year.
Many employees who are covered by the Fair Work Act 2009 are also covered by a Modern Award or Enterprise Agreement. These often contain additional annual leave entitlements which must be provided to employees. For example, full-time nurses covered by the Nurses Award 2010 must accrue a minimum of five weeks’ annual leave each year.
Fiction: Annual leave can be ‘reset’ to zero if leave isn’t taken
Under the Fair Work Act 2009, an employee’s unused annual leave must rollover from year to year. An employer covered by this Act must not ‘reset’ an employee’s annual leave balance to zero if leave isn’t taken within a specific period of time.
Fact: Annual leave accrues progressively
Under the Fair Work Act 2009, annual leave accrues progressively throughout each employee’s year of service, based on the employee’s hours of work. For example, a full-time employee who is entitled to accrue four weeks of annual leave per year will have accrued exactly two weeks of annual leave after completing six months’ service (assuming no leave has been taken during that time).
Similarly, permanent part-time employees accrue annual leave on a pro-rata basis based on their actual hours of work.
Fiction: All employees receive ‘annual leave loading’
Annual leave loading is an additional amount paid to some Modern Award or Enterprise Agreement-covered employees when they take annual leave. It is usually (but not always) set at 17.5%.
Some other employees also receive annual leave loading because their employer has voluntarily chosen to provide this benefit.
This means an employee who is not covered by a Modern Award or an Enterprise Agreement – and whose employer has chosen not to offer annual leave leading – does not receive this specific benefit.
It’s accordingly very important to always check applicable Modern Awards and Enterprise Agreements carefully to confirm whether annual leave loading is payable to a given employee.
Fact: Unused annual leave must be paid out when employment ends
An employee’s unused annual leave needs to be paid out to them when employment comes to an end. If the employee would have been paid annual leave loading if the leave had actually been taken, then this almost always needs to be added to the payout.
Lastly, please keep in mind deductions can sometimes be made from an employee’s final payment, however, very strict rules apply. We strongly recommend you obtain expert advice before making any deductions from an employee’s final pay.