MTA EMPLOYMENT RELATIONS FACT SHEET

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1 FAIR WORK ACT 2009 ANNUAL LEAVE 14 November 2012 Update Operative: On and from 1 January 2010 MTA EMPLOYMENT RELATIONS FACT SHEET The Fair Work Act 2009 includes a Division 6 Annual Leave of Part 2-2 The National Employment Standards (NES) and this Division sets out annual leave standards for all full-time and part-time employees. For award covered employees employed under the Vehicle Manufacturing Repair Services and Retail Award 2010 (VMRSR Modern Award), and the Clerks - Private Sector Award 2010 (Clerks Modern Award) the NES and the award requirements must be read together to determine entitlements. For award free personnel the NES on its own determines entitlements. Members should note that the VMRSR Modern Award and the Clerks Modern Award both require that copies of the awards must be displayed on the notice board together with the NES or available electronically for the use of employees. Both of which are able to be downloaded from the MTA website member area ( or the ERIS website ( Amount of accrual An employee (other than a shiftworker dealt with below) is entitled to accrue an amount of paid annual leave progressively during the employee s period of service with the employer. Effective on and from 1 January 2010 an employee is entitled to 1/13 ( ) of the number of hours worked by the employee for the employer for the ordinary hours of work. For a full-time employee this would equate to an accrual each week of hours annual leave for each 38 hours worked [38 X 1/13 ( ) = 2.923]. The NES provides under Division 3 Maximum Weekly Hours to be 38 plus reasonable additional hours. However, by agreement with award free employees, such additional hours do not have to form part of ordinary hours for accrual purposes for annual leave entitlements. If you have agreed with the employee that the ordinary hours are 38 and the rate for such ordinary hours, this will cap the cost of the NES entitlements for annual leave. Service and continuous service Section 22 of the Fair Work Act 2009 defines service and continuous service as follows: 22 Meanings of service and continuous service General meaning (1) A period of service by a national system employee with his or her national system employer is a period during which the employee is employed by the employer, but does not include any period (an excluded period) that does not count as service because of subsection (2).

2 (2) The following periods do not count as service: (a) any period of unauthorised absence; (b) any period of unpaid leave or unpaid authorised absence, other than: (i) a period of absence under Division 8 of Part 2-2 (which deals with community service leave); or (ii) a period of stand down under Part 3-5, under an enterprise agreement that applies to the employee, or under the employee s contract of employment; or (iii) a period of leave or absence of a kind prescribed by the regulations; (c) any other period of a kind prescribed by the regulations. (3) An excluded period does not break a national system employee s continuous service with his or her national system employer, but does not count towards the length of the employee s continuous service. So the period of service excludes any period of unauthorised absence or any period of unpaid leave or unpaid authorised leave. Such periods will include leave without pay or unpaid sick leave. But such absence does not break the continuous service but does not count towards the length of the employee s continuous service. There is an exception to this under Section 22(4) only unauthorised absences reduce the period of service for the purpose of qualifying for leave pursuant to Division 4 Requests for Flexible Work Arrangements and Division 5 Parental Leave and Related Entitlements. Entitlement to take leave Employers may not unreasonably refuse to authorise an employee to take paid leave. For an employee to take an amount of annual leave they must have at least that amount of annual leave credited. An employee requesting leave may take any amount of annual leave as there is no maximum or minimum limit. Employers should manage approval of leave based on the operational requirements of the business as this will be a reasonable basis to refuse leave. Managing leave accruals An employer s right to direct an employee to take annual leave is only available where the employee has an annual leave accrual in excess of 8 weeks. Under the VMRSR Modern Award employers may require an employee to take up to a quarter of the accrued entitlement with 4 weeks notice. With respect to the Clerks Modern Award an employer can require an employee to take all of the accrued leave once the employee reaches 8 weeks accrual. Public holidays, personal leave and other leave Where the period of leave includes a public holiday the employee is taken to be not on annual leave for that day or part day. This also applies to other leave such as personal leave eg, sick leave, carer s leave, compassionate and community service leave but not parental leave. For example, an employee that falls ill during a period of annual leave or is required to care for a member of their immediate family may claim this when away on annual leave. The employee must still comply with

3 the requirements of the award and NES with respect to notifying the employer but, theoretically it allows for conversion of annual leave to personal leave, etc. Payment for annual leave The payment for annual leave under the VMRSR Modern Award is determined by the wages paid to the employee based on what would have been paid under the award for working ordinary hours during the period of annual leave, including any other wages paid under the employee s contract of employment. This then includes the award wage, any overaward payment and the First Aid allowance if applicable which has been separately identified for payment. District Allowances in Northern Territory and West Australia also continue to be paid. However, under the Clerks Modern Award it is paid at the base rate of pay for the period of the paid annual leave. Award free employees are also paid at the base rate of pay. So for the VMRSR Modern Award clause 29.7 provides as follows: Payment for period of leave (a) (i) (ii) Instead of the base rate of pay as referred to in s.90(1) of the Act, an employee under this award, before going on annual leave, must be paid the wages they would have received in respect of the ordinary hours the employee would have worked had the employee not been on leave during the relevant period. During a period of annual leave an employee will also receive a loading as follows: Day workers Employees who would have worked on day work only had they not been on leave 17.5% loading. Shiftworkers Employees who would have worked on shiftwork had they not been on leave 17.5% loading or the shift loading, whichever is the greater but not both. (b) (c) Subject to clause 1.1(c), the wages to be paid must be worked out on the basis of what the employee would have been paid under this award for working ordinary hours during the period of annual leave, including allowances, loadings and penalties paid for all purposes of the award, first aid allowance and any other wages payable under the employee s contract of employment including any over award payment. The employee is not entitled to payments in respect of overtime, special rates or any other payment which might have been payable to the employee as a reimbursement for expenses incurred. Subclause 29.7(b) limits the payment of allowances, penalties and loadings only to circumstances where such payments are to be paid for all purposes of the award. The wording of clause 19 Allowances and special rates, clause 38 Saturday work, clause 39 Sunday work, clause 40 Public holidays, clause 42 Shiftwork and rates and clause 54 shiftwork and rates under Section 2 Vehicle manufacturing employees each contain wording that defines such payments as not being paid for all purposes of the award. The first aid allowance has to be paid because it is specifically identified as required to be paid. District Allowances in Northern Territory and West Australia also continue to be paid whilst such allowance apply.

4 For clarity then members do not have to pay: Saturday, Sunday and public holiday penalty payments for ordinary hours of work that would otherwise have been worked during a period of annual leave; tool allowance or the leading hand allowance to employees taking annual leave - indeed any of the allowances in clause 19 do not have to be paid; overtime payments; Shift work rates except where such rates exceed the 17.5% annual leave loading see below; all reimbursement allowances such as travel, meal allowances, etc. Also excluded are commission and bonuses that are not treated as wages. It will be important to separate out such payments as currently applies via the MTA Vehicle Salesperson Commission Agreement. One exception may be payments made for attendance at work which are not based on productivity of the employee and, therefore not characterised as bonus payments. Members that make such payments should contact the MTA to discuss their individual position. Members that are covered by the manufacturing section of the VMRSR Modern Award should note that some penalty payments and allowances for security staff and drafting, planning and technical employees engaged under Sections 2 and 3 of the award are paid for all purposes of the award, so must be included as a part of wages paid for annual leave taken. Members that employ such staff may contact the MTANSW to discuss their individual position. For the Clerks Modern Award and award free employees under the Fair Work Act 2009 the base rate of pay is defined as follows: 16 Meaning of base rate of pay General meaning (1) The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following: (a) incentive-based payments and bonuses; (b) loadings; (c) monetary allowances; (d) overtime or penalty rates; (e) any other separately identifiable amounts. This means that only over-award payments that relate to ordinary hours of work are included. All other allowances or separately identifiable rates or allowances are excluded. With award free employees there is an opportunity to agree what are the ordinary hours of work and the rate of payment for such hours of work for the purpose of annual leave but exclude the additional hours that are separately identified amounts. This could also be extended to include other payments eg, productivity allowances, etc. On termination, an employee s untaken amount of accrued annual leave must be paid at the applicable rate that is no less than the employee s actual rate of pay if covered by the VMRSR

5 Modern Award or the base rate of pay for clerical and award free employees at the time of termination. 17.5% leave loading The VMRSR Modern Award at clause 29.7(i) day workers or 29.7(ii) shift workers provides and entitlement to a 17.5% loading when leave is taken. The loading for shift workers is the greater of the 17.5% annual leave loading or the shift loadings. The Clerks Modern Award at clause 30.3 provides an obligation to pay a 17.5% loading on any annual leave taken provided the amount is greater than weekend penalties or shift loadings (including relevant weekly penalty rates). Shiftworkers Under the NES at Section 87(1) a shiftworker is entitled to an additional week of annual leave per year. This arises where a modern award defines the employee as a shiftworker for the purposes of the NES and for an award free shiftworker that meets the requirements of section 87(3). The VMRSR Modern Award at clause 29.5 provides a definition for this purpose at clause 29.5 as follows: 29.5 Seven day shiftworkers (a) For the purpose of the additional week of annual leave provided for in s.87(1)(b) of the Act, a shiftworker is a seven day shiftworker who is regularly rostered to work on Sundays and public holidays. (b) Where an employee with 12 months continuous service is engaged for part of the 12 month period as a seven day shiftworker, the employee must have their annual leave increased by half a day for each month the employee is continuously engaged as a seven day shiftworker. The Clerks Modern Award at clause 30.2 has the following definition: 30.2 Definition of shiftworker For the purpose of the additional week of annual leave provided for in the NES, a shiftworker is a seven day shiftworker who is regularly rostered to work on Sundays and public holidays in a business in which shifts are continuously rostered 24 hours a day for seven days a week. In most cases under these awards it is unlikely that members will have many or any employees working shift work that are regularly rostered to work on Sundays and public holidays. Clause 29.5(a) of the VMRSR Modern Award provides for a different method of accrual of the additional leave for an employee that is a seven day shiftworker that only works part of the year and has more than 12 months employment. This concept presumes that progressive accrual has not been undertaken. So an award free shiftworker under the NES and an award covered seven day shift worker is entitled to accrue an amount of paid annual leave progressively during the employee s period of service with the employer. Effective on and from 1 January 2010 an employee is entitled to 5/52 ( ) of

6 the number of hours worked by the employee for the employer for the ordinary hours of work. For a full-time employee this would equate to an accrual each week of hours annual leave for each 38 hours worked [38 X 5/52 ( ) = ]. The NES provides under Division 3 Maximum Weekly Hours to be 38 plus reasonable additional hours. However, by agreement with award free shiftworkers, such additional hours do not have to form part of ordinary hours for accrual purposes for annual leave entitlements. If you have agreed with the employee that the ordinary hours are 38 and the rate for such ordinary hours, this will cap the cost of the NES entitlements for annual leave. Annual leave close down An employer must provide 4 weeks notice of the intention to shut down the business, or any part of the business, an employee must take an amount of annual leave directed by the employer up to the amount of annual leave credit owed to the employee at the date of the commencement of the shutdown. If the employee has less annual leave credit available when compared to the period of the shutdown, the employee will be on leave without pay for the remainder of the period of the shutdown. Accruing leave during workers compensation Section 130 precludes the accrual of leave entitlements whilst and employee is receiving compensation payments under the law of the Commonwealth, State or Territory except where this is allowed by a compensation law. The MTA Employment Relations has reviewed NSW compensation law and no such obligation appears to apply. Paid leave in advance of accrued entitlement The VMRSR Modern Award at clause 29.6 provides that an employer may allow an employee to take leave in advance of entitlement. The Clerks Modern Award at clause 30.4 has a similar provision. Cashing out annual leave For award covered employees the NES only allows for cashing out of annual leave if it is permitted in a modern award. The VMRSR Modern Award and the Clerks Modern Award do not include such a provision. Section 94 allows award free employees to cash out annual leave. The employer and employee must agree to the cashing out of annual leave provided that 4 weeks accrued leave is maintained as a minimum entitlement. Each agreement must be a separate agreement recorded in writing on each occasion. The employee must be paid what he would have been paid if he had actually taken the leave. An employer may require an award free employee to take a period of paid annual leave if it is reasonable. An example of reasonable request is when there is excessive accrual or the business is being shut down for the purpose of taking annual leave. Moreover, the employer and employee may agree on when and how leave may be taken by the employee. Members who require further assistance utilising this information should contact MTA s Employment Relations Services on (02)