Managing employee annual leave balances
Annual leave gives employees an opportunity to rest and recharge, but large or unmanaged leave balances can create challenges for employers.
A growing annual leave balance represents an accumulating financial liability and can also make it harder to manage staffing, workload and employee wellbeing.
Employers should have a clear approach to monitoring annual leave and encouraging employees to take regular breaks.
What is an excessive annual leave balance?
There is no general rule that an employee's balance becomes excessive once it reaches four weeks.
For many employees covered by an award, an annual leave balance is generally considered excessive when it exceeds 8 weeks. For shiftworkers, the threshold is generally 10 weeks. However, the specific rules can vary between awards and enterprise agreements.
Where an employee has accumulated a large balance, employers should address it rather than allowing the balance to continue growing indefinitely.
In many cases, the best starting point is a conversation about when the employee can take some of their accrued leave.
Can an employer require an employee to take annual leave?
Employers can direct employees to take annual leave in some circumstances, but the rules depend on what covers the employee.
For employees covered by an award or enterprise agreement, the employer can only direct them to take annual leave if the applicable award or agreement allows it and the requirement is reasonable.
Some awards contain specific provisions for managing excessive annual leave balances. These can set requirements around notice, the amount of leave that can be directed and the minimum balance an employee must retain.
For award and agreement-free employees, an employer can require annual leave to be taken if the requirement is reasonable. An excessive leave balance can be one circumstance in which a direction may be reasonable.
The important point is that employers should not assume they can simply direct an employee to take leave because their balance looks high. Check the applicable award or agreement first.
What about workplace shutdowns?
A temporary shutdown is another situation where employees may be required to take annual leave.
Shutdowns can occur over Christmas and New Year, during school holidays, for seasonal closures, renovations or other periods when a business temporarily stops operating.
For employees covered by an award or enterprise agreement, the employer can only direct employees to take annual leave during a shutdown if the applicable award or agreement allows it.
The relevant instrument may also set requirements around the timing of the shutdown, notice and how annual leave must be handled.
Don't assume that because your organisation has used the same shutdown process in previous years, it can automatically do so again.
For more information, read Changes to shutdown clauses in awards: what employers need to know >
What if an employee doesn't have enough annual leave?
Employees may not have enough accrued annual leave to cover a planned shutdown or period of leave.
Depending on the applicable award or agreement, an employer and employee may be able to agree in writing to take annual leave in advance or unpaid leave.
Employers should not simply place an employee on unpaid leave because they have run out of annual leave. The applicable award or agreement needs to be checked and any required agreement obtained.
Employers should also check whether other leave entitlements, such as long service leave, may apply. Long service leave rules vary depending on the applicable state or territory law, award or agreement. For employees covered by a portable long service leave scheme, additional rules may apply.
Read Portable Long Service Leave for Community Services Employers: What You Need to Know >
Can employees cash out annual leave?
Some awards and enterprise agreements allow employees to cash out a portion of their annual leave, subject to specific requirements.
Generally, employees must retain at least four weeks of annual leave, there must be a written agreement each time leave is cashed out, and the employee must receive at least the amount they would have received if they had taken the leave.
Employers also cannot force or pressure employees to cash out annual leave.
How can employers manage annual leave balances?
A practical approach is to:
monitor leave balances regularly
identify employees whose balances are continuing to grow
encourage employees to plan and take regular breaks
discuss excessive balances with employees before they become difficult to manage
check the applicable award or enterprise agreement before directing leave
plan ahead for temporary shutdowns and other periods when leave may need to be taken
make sure payroll records accurately reflect leave taken and accrued.
Managing annual leave proactively can help employers avoid a situation where large balances become a financial, operational or employee wellbeing issue.
Don't let annual leave balances get away from you
Annual leave is an employee entitlement, not simply an administrative figure on a payroll report.
Regularly reviewing balances and having practical conversations about taking leave can help employers manage financial liabilities while supporting employees to take the breaks they are entitled to.
If you're unsure how to manage annual leave balances, shutdowns or award requirements, Workplace Plus can help you review your current approach and identify any compliance risks.
Need help with your HR or payroll compliance? Book a confidential discovery call with Workplace Plus.
