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 minimum four weeks’ annual leave after the end of each completed 12 months of continuous employment.   

Eloise Callister-Baker, solicitor 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. But a week for a part-time employee who always works the same hours three days a week would be three days,” she says. 

Callister-Baker says for casual employees, it's possible the employee and employer to agree that holiday pay is paid regularly with their normal pay. 

She says this can happen if: 

  1. the work the employee does is so intermittent or irregular that it's impracticable for you to give them annual leave 

  1. the holiday pay is an identifiable component of their pay and  

  1. 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. Callister-Baker 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 each year,” she says.  

“There is no prescribed timeframe for when an employee must give you notice for taking annual leave. However, as you and your employee must first try and agree when your employee will take annual leave then your 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 accrued annual leave, they’re entitled to apply for it. You should only reject the request on reasonable grounds. 

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 try to agree when they will take their annual leave,” says Callister-Baker. “However, if you can’t agree, 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 all or some of their annual leave during a customary close down period.” 

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 Callister-Baker. “You do not have 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. 

Callister-Baker 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)  

  • less any amount paid to your employee for annual leave taken in advance.  

“Your payroll systems need to be set up to deal with this,” she adds. 

Can you dismiss an employee on annual leave? 

Dismissing an employee while they’re on annual leave presents risks. Callister-Baker says it’s unlikely that dismissal will be justified and you may be exposed to an unjustified dismissal personal grievance.   

“This is because you need to have a justifiable reason for dismissal and follow a fair and proper dismissal process before dismissal. You are unlikely to achieve the need to have a fair process while your employee is on annual leave.” 

Annual leave is an important ingredient for work-life balance and 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 leave your company for any reason, you must pay them for the leave they’re entitled to. 

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