Directing an employee to take annual leave

When it comes to directing an employee to take annual leave, financial liability, employee wellbeing and obligations under the Fair Work Act should all be factored in. Here’s the breakdown.

There are a number of reasons why a business might accumulate excessive employee annual leave balances, including:

• limited capacity to cope with the absence of key team members
• employee aversion to creating a work backlog while on leave
• employees hoarding leave for long getaways or as a contingency for serious illness.

Outstanding annual leave balances pose a financial liability to a company’s balance sheet. The longer employees go without taking holidays, the greater the risk to a company’s cash flow in the long term.

Going lengthy periods without leave can also have a detrimental effect on employee productivity levels and job satisfaction.

When it comes to employment rights, an employer can direct an employee to take annual leave, but only when an award or registered agreement allows it and the requirement is reasonable.

Similarly, the National Employment Standards (NES) allow an employer to require an award-free employee to take a period of annual leave, but only if the requirement is reasonable.

Generally, an annual leave balance is considered ‘excessive’ if an employee has more than:

• 8 weeks of annual leave, or
• 10 weeks of annual leave if they are a shift worker.

In assessing reasonableness, the following factors are relevant:

• the needs of the employee and the employer’s business
• any agreed arrangement with the employee
• custom and practice of the business
• timing of the direction or requirement to take leave
• the length of the period of notice given.

Prior to the employer directing an employee to take annual leave, the parties must have conferred and genuinely tried to reach an agreement to reduce or eliminate the excessive leave accrual. One option could be cashing out a portion of the annual leave.

Maintaining employee leave balances to an acceptable level makes sense, from both a business and people perspective. Another thing that makes sense is not spending a bucketload of your own time trying to understand the Fair Work Act. And that’s where Bare Bones Consulting comes in. Call us today for a complimentary consultation.