We are sometimes asked if employees can be paid at a higher rate of pay for hours worked so that their employer does not need to pay the employee when they take periods of annual leave.

If the employee is casual, this situation cannot apply as casual employees are paid a higher loading and have no entitlement to paid annual leave. Therefore, we will focus on part-time and full-time employees in this blog.

Fair Work Act 2009 (Cth)

Part-time and full-time employees are entitled to be paid for any periods of annual leave regardless of their hourly rate in accordance with the Fair Work Act 2009 (Cth).

Re Canavan Building Pty Ltd [2014] FWCFB 3202

The 2014 decision by 5 members of the Fair Work Commission in Re Canavan Building expressed that ‘paid annual leave’ is a single term.

In effect, this decision banned a practice of paying annual leave in advance and said that pre-paid annual leave will not constitute ‘paid annual leave’. The employee would still be entitled to paid annual leave.

WorkPac Pty Ltd v Rossato [2020] FCAFC 84

In the Federal Circuit and Family Court of Australia decision of WorkPac Pty Ltd v Rossato, Justice White commented:

“The FW Act does not contemplate a choice between wage payment or all-in rate remuneration – the latter is only permitted for casual employees.”

Justice Bromberg stated:

“The timing of payments is important and regulated as part of the entitlement… Generally, payment must accompany the leave.”

Conclusion

Except through cashing out provisions compliant with applicable awards, enterprise agreements, or the Fair Work Act 2009 (Cth), employers cannot pre-pay annual leave as a component of standard wage payments to employees.

If you have questions about annual leave entitlements, please contact Morgan Couzens Legal on (03) 5722 4681.