Australia: Changes to Personal/Carer’s Leave and Introduction of Annualised Leave

Changes to Personal/Carer’s Leave: What You Need to Know

After the recent Australian Full Federal Court decision, employers should ensure they are implementing personal/carer’s leave correctly.

On 21 August 2019, the Australian Full Federal Court reached a decision in Mondelez vs the Australian Manufacturing Workers Union (AMWU): a case concerning the way personal/carer’s leave (PCL) is implemented in Australia. The court ruled against Mondelez, a global confectionery company, and its interpretation of how employees should accrue and take PCL under the National Employment Standards set out by the Fair Work Act 2009.

While the court’s decision is subject to an appeal to the Australian High Court, it has consequences for the implementation of PCL across Australia. Pending the appeal, employers in Australia should ensure that they are clear about their obligations under the National Employment Standards and how to handle their employees’ requests for leave.

Mondelez vs AMWU: Legal Impact

The FFC ruled that personal/carer’s leave must be calculated in working days rather than in hours. In this context, a working day means the duration of a 24-hour period in which an employee could otherwise be working for their employer. The Fair Work Act 2009 entitles employees to 10 working days of paid PCL for every year of their employment.

Key considerations from the decision for employers are as follows:

• The PCL that employees accrue must expressly be calculated in days.
• Every day of PCL that an employee takes can be deducted from their leave balance. Part-days of leave must be deducted as part-days from their balance.

Because the decision regards the National Employment Standards and employees’ statutory entitlements, the updated PCL accrual regulations apply to an employee’s start date (and retroactively if necessary) - rather than the date at which the court decision was made.

How has PCL changed?

The decision effectively makes two key changes to current PCL entitlements:

Unit change: Under the previous regime, PCL was accrued in hourly units. It will now be accrued in daily units.

Accrual entitlement: Previously, PCL accrued per hour worked. Now the leave accrues on any day that could otherwise be a working day for the employee. The only context in which PCL does not accrue is on days that do not count as service (paid leave).

For clarity, PCL accumulates when:

• An employee is on paid leave such as annual leave
• An employee is on community service leave such as jury duty
• An employee is on long service leave

New PCL categories

In order to accommodate the updated accrual rules, it may be necessary to create new categories of leave for employees on PCL. This will be the case for businesses created prior to 18 February 2020 since their existing payroll infrastructure would have been calibrated for the previous system. Businesses created after 18 February 2020 should have the current PCL setting applied to their payroll by default.

Converting PCL entitlement

Many businesses will need to convert their employees’ existing PCL balances from the hourly system to the new daily system. Essentially that means employers must work out the number of ‘days’ their employees have worked by extrapolating an average from hourly data. Employers should use the following calculation:

• Divide the number of hours the employee worked per week by the number of days the employee worked,

And/or,

• Generate a timesheet report over a reasonable period of time for employees who do not have a regular work pattern. Average daily hours can be worked out by dividing the total duration of work from that period by the number of days worked.

Businesses that use a payroll provider to calculate PCL should check that appropriate measures have been taken to facilitate the new system. It is possible that employers may have to manage back-payment claims extending as far as 1 January 2010 (the date when the Fair Work Act came into legal effect) for some employees.

Introduction of Annualised Salary Clauses for Modern Awards

From 1 March 2020, employers will have new obligations towards modern award employees on annualised salary arrangements.

After a review in 2019, the Fair Work Commission (FWC) decided to introduce annualised salary clauses for 19 modern awards. An annualised salary arrangement is an annualised rate of pay that includes performance-related entitlements such as weekend pay rates, overtime, and penalty rates. Annualised salaries impose certain obligations on employers in order to ensure that employees are not financially disadvantaged.

New annualised salary clauses

The new annualised salary clauses for modern awards expand those employer obligations with new requirements for record-keeping and salary calculation. Two types of clauses, referred to as Model Clause 1 and Model Clause 3, are now applicable to annualised salary arrangements in the relevant modern awards.

• Model Clause 1 does not require employers to obtain employee agreement to enter into an annualised salary arrangement
• Model Clause 3 does require employers to obtain employee agreement to enter into an annualised salary arrangement. The arrangement can be terminated by mutual consent with 12 months’ written notice.

Annualised salary requirements

Employers should notify their employees in writing of the details of their annualised salary arrangement and how it will be calculated. That notification should include the amount of work hours that would trigger penalty rates or payments above the annualised salary amount.

In order to ensure employees are not disadvantaged by their annualised salary arrangement, Model Clause 1 and Model Clause 3 introduce the following provisions:

Annualised salary amount: The amount an employee receives from their annualised salary cannot be less than they would have received from their award over 12 months.

Annual reconciliation: From the start of the salary arrangement to the termination of employment, employers must calculate how much an employee would have been paid under their modern award compared to the actual salary paid under the annualised salary arrangement. If there is a shortfall, employers must pay the outstanding amount to their employees within 14 days.

Record-keeping requirement: Employers must record annualised salary employees’ work start and finish times, and unpaid breaks in order to fulfil their reconciliation requirements. Employees must sign off on the record each pay cycle.

Employers should ensure that they have made arrangements to comply with their Model 1 and Model 3 clause obligations, including implementing an appropriate record-keeping system.

Finally, employers should be familiar with the modern awards that involve annualised salary clauses.

Model 1 Clause awards:

• Banking, Finance and Insurance Award 2010
• Clerks - Private Sector Award 2010
• Contract Call Centres Award 2010
• Hydrocarbons Industry (Upstream) Award 2010
• Legal Services Award 2010
• Mining Industry Award 2010
• Oil Refining and Manufacturing Award 2010 (clerical employees only)
• Salt Industry Award 2010
• Telecommunications Services Award 2010
• Water Industry Award 2010
• Wool Storage, Sampling and Testing Award 2010

Model 3 Clause awards:

• Broadcasting and Recorded Entertainment Award 2010
• Local Government Industry Award 2010
• Manufacturing and Associated Industries and Occupations Award 2010
• Oil Refining and Manufacturing Award 2010 (non-clerical employees)
• Pharmacy Industry Award 2010
• Rail Industry Award 2010
• Pastoral Award 2010
• Horticultural Award 2010

Learn more about payroll and salary in Australia with our Australia Global Insight Guide: find background information on Australia’s global economic profile, its major industrial sectors, FDI trends, business practices and more.