Managing Annual Leave Accruals
Is your business concerned about its accrued liability for employees’ holiday pay? If not properly managed, this liability can creep up and lead to substantial cash outlays often at a time when your business can least accommodate it.
One employer (Hull-Moody Finishes Pty Ltd) came up with an innovative method to smooth out its cash flow and leave accrual liabilities by entering an enterprise agreement with its seven employees which provided for “loaded” hourly rates incorporating over award penalty rates and payment in advance for annual leave, long service leave and personal leave on condition that each employee take at least two weeks’ unpaid leave each year (because the annual leave component would already have been paid). The enterprise agreement was knocked back by Fair Work Australia (“FWA”) at first instance but approved on appeal.
It is feasible that similar arrangements could be incorporated in common law employment contracts, for example, for non-award or managerial employees.
But before you shout too many hallelujahs there is a little sting in the tail of all this:
The application for FWA approval was not opposed and there was no Union involvement.
Even so, the Hull-Moody arrangements were only approved by a 2/1 majority decision of FWA which means that the effective split is 2/2 when the decision at first instance is taken into account.
There is some concern mirroring the “minority” FWA view that such arrangements are contrary to the protective context of the Fair Work Act because they allow cashing out of annual leave.
Any such arrangements must take into account the “better off overall” requirements of FWA.
Employers adopting such arrangements must ensure that the advance payment loading is reviewed and adjusted to take into account any pay rises throughout the relevant year.
The Hull-Moody arrangements will not suit all businesses but they may have particular application for the Mining, Building & Construction Industries and industries were shift work is prevalent.
Before embarking on any such arrangements, however, employers should be careful to seek appropriate advice.
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