Q: Many of our employees have excessive amounts of annual leave accrued. We would like to get rid of this liability. What is the best way to go about this? Do we need to introduce a policy, or can we tell employees that their salaries will not be reviewed until they reduce their leave balances by a certain amount?

A: Award or agreement-free employees may be directed to take annual leave provided that the direction is reasonable. The Fair Work Act contains a note (that is not strictly a part of the legislation) that excessive leave accrual may make a requirement to take annual leave reasonable. Another way to show that a direction to take annual leave is reasonable is to make it a requirement that you must give an employee a good amount of notice before you require them to take leave. It is a good idea to set out these matters in a policy (as you have suggested).

If your employees are covered by an award or registered agreement, then you’ll need to look at those instruments to determine whether your employees may be directed to take annual leave.

The second option you raise – telling your employees that their salaries will not be reviewed until they reduce their annual leave balances by a certain amount – is problematic. This is because it is unlawful to take adverse action (such as denying employees a raise or promotional opportunities) against an employee because they have (or have not) exercised a workplace right. Doing what you propose could expose your business to a general protections claim.

You may wish to consider a third option, which you could include in your policy. Employers of award or agreement-free employees may agree with their employees to cash out annual leave provided that the employee continues to maintain a balance of at least 4 weeks leave after the cashing out. These agreements must be recorded in writing. Obviously, no pressure must be applied to employees.

Please note: The answer is correct at the time of publishing. Be aware that laws may change over time. Refer to Annual leave for current advice.