Can your workplace force you to take annual leave?

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Something I’m always a bit surprised by when I’m overseas is how shocked some people are about Australia’s annual leave provisions. When I tell them that most workers get four to six weeks of paid leave a year, eyebrows get raised, though admittedly a lot of those eyebrows have been American, who might be lucky to get 10 days a year – and that’s including sick leave!

From these discussions, I’ve always assumed Australia was on the upper end when it came to our leave offerings, but studies show we’re relatively middle of the pack compared to other developed nations when considering our base entitlements.

Where we really start to shine is when things such as long service, carers’ and sick leave get added to the mix where, on some calculations, we come out at the top. And currently unions are pushing for an extra five days of leave to be added each year, which would really cement us as one of the more generous nations.

What’s the problem?

Despite this, annual leave is generally underutilised by Australian workers. We have roughly 209 million days of annual leave due, a number which has been steadily growing over the past few years.

Workers also often aren’t fully across their entitlements, and what they can and can’t do in relation to annual leave, a confusion which isn’t aided by the at times differing laws from state to state. Workplaces also often offer employees the ability to buy more, or even cash out their leave.

What you can do about it

So what do you need to know when it comes to annual leave, especially when it comes to super and tax?

• Can you be forced to take leave? One of the most common questions asked when it comes to your time off is whether your boss can force you to take it. Unfortunately, the answer isn’t completely straightforward, with Professor Marilyn Pittard from Monash University’s Faculty of Law saying while leave usually needs to be mutually agreed by the employer and employee, there are scenarios where your work can ask you to take it. “There are a couple of situations where you can be directed to take annual leave, and one of those is when there’s a temporary shutdown, like between Christmas and New Year,” she says. “The other is in the circumstance of excess annual leave accrued, which is considered eight weeks or more. In those circumstances, if the employer and employee can’t agree on how that excess annual leave is to be done, the employer can direct the employee to take it.” However, these circumstances change for employees who are covered under a national award or enterprise agreement, so it’s worth checking what specific rules apply to you under those instruments.
• What gets paid out? Leaving your job and getting your leave paid out can feel like a little treat, but you’re really just being paid what you’re owed. “Any accrued but untaken annual leave must be paid out when employment ends, regardless of the reason for leaving. Whether you resign, are made redundant, or are let go, that balance is yours,” says Simon Obee, head of HR advisory at Employment Hero. Crucially, Obee says, this includes annual leave loading, which is an additional payment (an extra 17.5 per cent) made to workers under some awards when they take leave, and often something which is overlooked by employers. Sick and carers leave is not paid out, but long service leave is, though Obee notes the rules on this varies from state to state. “Generally speaking, if you’ve worked long enough to become entitled to long service leave (usually seven to 10 years, depending on the state or territory), that entitlement is paid out on termination, regardless of the reason employment is ending,” he says. However, states such as NSW will pay out long service leave at a pro rata basis if an employee quits after just five years. Finally, you can cash out your leave without leaving your job in certain circumstances, but it has to be done in agreeance with your employer, and you must retain at least four weeks of leave balance.
• Can I buy more leave? Generally, awards don’t provide the ability for employees to purchase additional leave, however many companies do so under their own schemes or enterprise agreements. These often allow up to an additional four weeks of leave to be “bought” by the worker via a reduction in their weekly rate of pay over the year. This can be a great way to get more paid time off if you require extra flexibility (to care for children or parents) or just want to take a really big holiday. It also can have tax benefits, but check with an accountant first.
• What about superannuation and tax? Finally, when you take leave and are paid for it, you’ll be taxed and super will be paid just the same as if you were working. Where that changes is in the case of being paid your leave as a lump sum. “These payments are typically classified as termination payments rather than ordinary time earnings, and therefore fall outside the super guarantee,” Obee says. Similarly, lump sum payments are treated differently from a tax perspective too. “[These] payments can have specific tax treatment, particularly if they include a component related to unused long service leave, which may be taxed at a concessional rate depending on when it was accrued,” he says.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.