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Managing employee annual leave balances

Annual leave is an entitlement for employees which is to be taken regularly to ensure that they have appropriate downtime and can relax. Not taking accrued annual leave can be hazardous to the health and safety of employees.

Excessive accrued annual leave balances can represent a significant financial liability for employers.

Here are some general options for managing employees with excessive annual leave balances:


Depending on business requirements, employers may shut down during quiet periods, for example over Christmas/New Year, and require their staff to take annual leave during this time. The Fair Work Act says that if a requirement is “reasonable” you can insist that employees who are not covered by an award or agreement take a period of annual leave. Enforcing staff to take leave over a shutdown period is even given as an example of a “reasonable” condition. But if your employees are covered by an award or an agreement, you will need to check the relevant provisions.

Direction to take leave

If an employee has accrued an excessive amount of leave, it is considered “reasonable” to direct them to take annual leave. While the Fair Work Act doesn’t define how much leave is “excessive”, greater than four weeks can be used as a general guide (this is used in many agreements and policies).

If your employees are covered by an award or an agreement, you will have to check those specific provisions. Most modern awards now provide for employers to direct employees with excessive leave balances to take paid annual leave. In certain circumstances, such employees can also give their employer a written notice requiring paid annual leave to be granted.

Cashing out of leave

Employers can cash out some of an employee’s leave balance, but only if the worker agrees to it. The agreement has to be in writing and the employee can’t be left with a leave balance of less than four weeks. Staff employed under a registered award or agreement can only cash out a maximum of two weeks’ leave every 12 months.

Requiring employees to use leave within a certain period

Some employers ask their staff to use their leave in the same year they accrue it, by stating in their policy that if an employee builds up a certain amount of leave, they must talk with their manager about a mutually convenient time to take it. Such policies may “encourage” staff to take leave, but these can’t be legally enforced unless the requirement is deemed “reasonable”.

Accrued leave can’t be lost just because an employee hasn’t used it within the stipulated time. An employee who doesn’t comply with the policy is still entitled to accrue leave and have it paid out on termination.

It is important for employers to be familiar with the rules around annual leave entitlements and, ideally, be able to come to an agreement with employees around managing leave balances. For bespoke assistance or more information, please contact us today.


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