A new back-pay headache

There’s been quite a lot of media coverage on the new approach being taken by the Fair Work Ombudsman (FWO) in relation to leaving loading.

As it has the potential to leave many businesses facing back-pay claims, I thought it would be helpful to explain the new advice as you may need to set up a contingency fund in this year’s accounts to cover claims from ex-employees if you haven’t paid leave loading on termination when you should have.

The new approach is endorsed by the FWO requires annual leave loading on accrued annual leave balances to be paid out when employment ends – even if a Modern Award does not require loading to be paid on termination.  Essentially, the reasoning behind this is that employees should not be 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.

So while a Modern Award may expressly stipulate that leave loading is not payable on termination, that particular provision is meaningless. The NES overrides terms in Modern Awards and agreements that are less generous.

What this means to you as an employer is that if your Modern Award provides for leave loading on accrued annual leave, then you must pay to leave loading on termination or resignation. Furthermore, as the FWO has indicated that employers should pay out leave loading retrospectively to 1 January 2010, you may be hit by back-pay claims from ex-employees who want to recover the unpaid annual leave loading.

Of course, there’s nothing you could have done to prepare for this and while it may be reassuring to know that the FWO is unlikely to penalize businesses for this underpayment, they will still be required to pay the leave loading.

As this new advice affects employees under 103 Moderns Awards (out of a possible 122), it’s highly likely that you will need to make provisions for this update.

If you are at all uncertain about which Modern Awards apply to your business or employees’ occupations, then clearly you need expert help.

In the same way that you turn to your accountant rather than the Australian Tax Office for help with business advice and tax minimization strategies, you need to turn to expert service for help with HR and employment relations issues – and not go along with the Fair Work Ombudsman.

Adrienne Unkovich is the Managing Director of Workforce Guardian – an online employment relations subscription service for Australian employers.


This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice may be necessary for particular transactions or on matters of interest arising from this article. Workforce Guardian Pty Ltd is not responsible for the results of any actions taken on the basis of information in this article, nor for any error or omission in this article.

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