By Adrienne Unkovich, MD, Workforce Guardian
A new approach being taken by the Fair Work Ombudsman (FWO) in relation to leave loading has the potential to leave many businesses in the retail industry facing significant back-pay claims.
The new approach being endorsed by the FWO requires annual leave loading on accrued annual leave balances be paid out when employment ends – even if a Modern Award does not require the loading to be paid. Essentially, the reasoning behind this is that employees should be not disadvantaged for not taking their accrued annual leave before their employment ends.
This new approach has come about after the Commonwealth Government sought advice from the Australian Government Solicitor. The advice states that the National Employment Standards (NES) – which guarantee minimum work entitlements – provide that upon termination any accrued annual leave entitlements must be paid at the rate they would have been paid had they taken the annual leave whilst still employed.
With multiple Modern Awards applying to occupations in the retail industry, it’s vital that you understand which Modern Awards apply to your employees, for example:
Modern award: General Retail Industry Award 2010, Commercial Sales Award 2010, Miscellaneous Award 2010
Annual leaving loading on termination: You are required to pay annual leave loading when an employee takes any annual leave. This Modern Award does not require annual leave loading to be paid to an employee if their employment ends. However, the NES require that any unused annual leave (including annual leave loading), is paid to an employee if their employment ends.
Action required: You are required to pay any unused annual leave in addition to annual leave loading when employment ends. Any former employees who left your business from 1 January 2010 onwards are also required to receive annual leave loading in addition to any unused annual leave they received when their employment ended. Review whether your former employees received payment for annual leave loading – if not, they are required to receive this payment. Set up a contingency fund to cover unpaid annual leave loading in this year's accounts.
You also need to be careful if you have implemented an annualised salary letter, agreed to an Individual Flexibility Agreement (IFA) or are paying an over-Award wage that includes annual leave loading which has not been expressly detailed into the contract. For help on what to do in these instances please go to the Workforce Guardian website for more information.
So, to be clear, if your Modern Award provides for leave loading on accrued annual leave, then you must pay leave loading on termination or resignation whether the Modern Award stipulates this or not. To make matters worse, the FWO has indicated that employer’s should pay out leave loading retrospectively to 1 January 2010. It’s this retrospective nature of the ruling that has the potential to hit employers hard and, at the end of the day, it’s simply neither fair nor reasonable for employers.
Just consider the number of employees that have left your business whether via resignation, redundancy or otherwiseover the last 15 months. If you have not paid them leave loading on accrued holiday pay (because the Modern Award provisions indicated otherwise) then you are now exposed to backpay claims fromevery one of those employees who wants to recover the unpaid annual leave loading.
Of course there’s nothing you could have done to prepare your business for this and while it may be reassuring to know that the FWOis unlikely topenalise your business for this underpayment, you will still be required to pay the loadings.
It’s vital that you understand which Modern Awards apply to your employees and that you also ensure that your business is compliant with the NES. After all, with this degree of complexity (it took the Australian Government Solicitor to sort this one out!) – is it any wonder that so many businesses get it wrong?
You also need to be careful if you have implemented an annualised salary letter, agreed to an Individual Flexibility Agreement (IFA) or are paying an over-Award wage that includes annual leave loading which has not been expressly detailed into the contract. For help on what to do in these instances please go to the Workforce Guardian website for more information.
So, to be clear, if your Modern Award provides for leave loading on accrued annual leave, then you must pay leave loading on termination or resignation whether the Modern Award stipulates this or not. To make matters worse, the FWO has indicated that employer’s should pay out leave loading retrospectively to 1 January 2010. It’s this retrospective nature of the ruling that has the potential to hit employers hard and, at the end of the day, it’s simply neither fair nor reasonable for employers.
Just consider the number of employees that have left your business whether via resignation, redundancy or otherwiseover the last 15 months. If you have not paid them leave loading on accrued holiday pay (because the Modern Award provisions indicated otherwise) then you are now exposed to backpay claims fromevery one of those employees who wants to recover the unpaid annual leave loading.
Of course there’s nothing you could have done to prepare your business for this and while it may be reassuring to know that the FWOis unlikely topenalise your business for this underpayment, you will still be required to pay the loadings.
It’s vital that you understand which Modern Awards apply to your employees and that you also ensure that your business is compliant with the NES. After all, with this degree of complexity (it took the Australian Government Solicitor to sort this one out!) – is it any wonder that so many businesses get it wrong?
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