With Christmas fast approaching, some employees have asked whether they can stretch out their annual leave on half-pay if they don’t have enough accrued leave. Is this permitted under the Act? Or what if your company policy or the employment contract doesn’t say anything specific on this? It’s a common question we’re getting as employers are preparing for any extended holidays and staffing requirements.

The answer to this question is that you need to refer to the applicable modern award or the Fair Work Act for award/agreement free employees. Let’s dig a little further into this.

For award-covered employees

With the exception of the Mining Industry Award 2010 (cl. 23.10), most modern awards do not allow the taking of annual leave on half-pay.

However, due to the pandemic, on 8 April 2020, the Fair Work Commission added the temporary Schedule X to 99 modern awards. Employees can take their annual leave at half-pay under Schedule X, and double their time off work if their employer allows.

The agreement needs to be in writing and kept on file. The leave needs to start before the date Schedule X stops operating in the relevant award but can finish after that date. So, double-check if this runs over the Christmas/New Year period or not.

If Schedule X doesn’t have a set end date in an award, the leave needs to start before 29 October 2020. An employee on leave at half-pay accumulates annual leave and personal leave the same way as they would on full-pay. To see if your award is on Schedule X, please visit the FairWork site.

What does the FairWork Act say?

Section 90(1) of the Fair Work Act says that if an employee takes paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the ordinary hours of work in that period. This means the employee is paid at their ordinary weekly hours for the period of annual leave, which would limit an arrangement where an employee can take additional leave on half-pay.

While the Act has terms relating to taking annual leave, half-pay may be included in a modern award or an enterprise agreement (s93). The applicable award or agreement must make specific terms to allow for this.

For award or agreement free employees

For employees who are not on an award or agreement, regulation 2.03 of the Fair Work Regulation 2009 states that an employer and an award/agreement-free employee may agree to the provision of “extra annual leave in exchange for foregoing an equivalent amount of pay.” 

This arrangement can also be agreed upon between an employer and an award or agreement-free employee for personal/carer’s leave.

What about enterprise agreements?

An enterprise agreement may contain terms which allow an employee to take extended annual leave at half-pay — even when the modern award does not permit the arrangement. This is because the arrangement is permitted by the Fair Work Regulation.

Are there any other alternatives?

An idea is an employee can take annual leave on full pay for the first half of the leave, and then the remainder is leave without pay. This means the extended absence will have the same rate of pay.

A thing to note under this arrangement is that leave without pay doesn’t count as service. So, employers need to explain this to employees before they agree to this arrangement.

Need help understanding Christmas shut-downs, stand-downs, how to roster skeleton staff or interpreting your award? If all of that is stealing all the Christmas spirit and joy, get in touch with us to see how we can help.