Annual leave and the law: Here’s what you need to know
All work and no play can throw anyone’s life off balance, and that’s why annual leave is a right that employees value so greatly. But are all workers entitled to it? Are you always obliged to give leave requests the tick of approval, and can you force your employees to take leave when it may not suit them?
Annual leave entitlements are governed by specific legislation that depend on factors like employment agreements and employment law. As an employer, you have obligations and rights when it comes to granting or declining annual leave applications, so we’ve asked an employment lawyer to explain the legal requirements.
Who’s entitled to annual leave and how is it calculated?
Employees are entitled to a minimum of four weeks’ annual leave after the end of each completed 12 months of continuous employment.
Joshua Kimpton, senior associate in the employment team at MinterEllisonRuddWatts explains that a ‘week’ of annual leave depends on what genuinely constitutes a working week for the employee.
“A week for a full-time employee who always works the same hours, five days a week, would be five days. However, a week for a part-time employee who always works the same hours, two days a week, would be two days,” he says.
Kimpton says that for casual employees and employees on fixed term agreements of less than 12 months, an employee and employer can agree that holiday pay is paid regularly with their normal pay.
He says this can happen if:
the work the employee does is so intermittent or irregular that it's impracticable for you to give them annual leave;
the holiday pay is an identifiable component of their pay; and
it’s paid at a rate of not less than 8% of their gross earnings.
For non-casual employees, an employee’s payslip might show that their annual leave accrues for every hour of work. Kimpton explains that an employee only receives their annual leave entitlement at the end of each completed 12 months of continuous employment.
“Unlike sick leave, there is no maximum amount of annual leave that your employee can carry over to the next year,” he says.
“There is also no statutory timeframe for when an employee must give you notice for taking annual leave. However, you and your employee must attempt to agree on when the employee will take annual leave. Practically, this means the employee cannot take annual leave without notice.”
Can you reject an annual leave request or force employees to take annual leave?
If an employee has an accrued entitlement to annual leave, they’re entitled to apply for it. You should only reject the request if there are reasonable grounds to do so.
As annual leave is an entitlement, employees may prefer to take it when it suits – to save it up for a big holiday, for example, or to build it up for when they really need it.
This approach may not suit all employers, as untaken annual leave is recorded as a liability on balance sheets.
“You and your employee must first attempt to agree when they will take their annual leave,” says Kimpton. “However, if you can’t reach an agreement, then you can require your employee to take annual leave by providing them with no less than 14 days’ notice of the requirement to do so.”
“You can also require your employees to take some or all of their annual leave during a customary close down period. Again, you must provide employees with no less than 14 days’ notice of this requirement.”
Can employees take longer than 4 weeks of leave?
If your employee has more than four weeks’ annual leave entitlement and wants to take all of their annual leave at once, you can agree to this but don’t have to.
“You must allow your employee to take at least two weeks of their annual leave in a continuous period at an agreed time,” says Kimpton.
“You are not required to agree to your employee taking longer than two weeks, but you should have a reasonable basis for not allowing this.”
“If your employee does not have enough annual leave entitlement to cover a period of leave that they wish to take, then you can agree with that employee to them taking the annual leave they have, as well as an agreed portion of their annual leave entitlement in advance and/or unpaid leave.”
What happens to untaken annual leave?
Whether an employee leaves your organisation voluntarily – or if they are fired or dismissed because of redundancy – you still have an obligation to pay their unused annual leave.
Kimpton explains that when your employee’s employment ends, you must pay them for:
any annual leave entitlement they haven’t taken, if any; and
8% of their gross earnings since they last became entitled to annual leave (or if they’ve worked less than 12 months, since their employment started); and
less any amount paid to your employee for annual leave taken in advance.
“Your payroll systems need to be set up to manage this,” he adds.
Can you dismiss an employee on annual leave?
Dismissing an employee while they’re on annual leave presents legal risk. Kimpton says in these circumstances, it is unlikely that dismissal will be justified and you may be exposed to an unjustified disadvantage and/or unjustified dismissal personal grievance.
“For a dismissal to be lawful, you must have a justifiable reason for it and follow a fair and proper dismissal process. You are unlikely to achieve the requirement for a fair and proper process while your employee is on annual leave.”
Annual leave is an important ingredient for a healthy work-life balance and it is a key driver for employees, so it’s important that you understand your legal obligations. As it’s a legal entitlement of full-time, part-time, and certain fixed-term employees, you can only reject leave requests on reasonable grounds.
And, if an employee leaves your company for any reason, you must pay them for the leave they’re entitled to.
Information provided in this article is general only, does not constitute legal advice and should not be relied upon as such. SEEK provides no warranty as to its accuracy, reliability or completeness. Before taking any course of action related to this article you should make your own inquiries and seek independent advice (including the appropriate legal advice) on whether it is suitable for your circumstances.