Last week the High Court passed down a decision on Personal Leave accruals that comes as a welcome relief for many employers and payroll teams across Australia.

To explain the decision, you first need to understand the background behind a decision that was handed down by the Fair Work Commission in August 2019, which changed the way Personal Leave was treated.

Known as the Mondelez decision, last year the full bench of the High Court ruled that Personal Leave entitlements of 10 days a year applied to both full-time and part-time employees, irrespective of hours worked. Further to this, they ruled that personal leave was to be accrued in days, not hours, meaning that regardless of whether employees worked a longer or shorter day, Personal Leave would be accrued as a whole day. This was an extremely literal interpretation of the Fair Work Act and not practical in its application or fair to full-time workers who worked more hours than part-time workers. Not to mention a complete payroll nightmare which exposed businesses to a raft of retrospective underpayment claims.

This meant irrespective of hours worked, all full-time and part-time employees were entitled to 10 days off per year which needed to be calculated in days, not hours. Many employers were left scratching their heads and scrambling to work out how they could apply this retrospectively and update their payroll systems that were not equipped to deal with such rules.

This decision was appealed in the High Court and was overturned last week. The new ruling is that employees are entitled to 10 ‘notional days’ leave per year; with the duration of a ‘day’ determined by identifying 1/10th of an employee’s ordinary hours over a 2 week period (which equates to 1/26th of their total ordinary hours over the course of a year).

A working example:

  • For a full-time employee working 38 hours a week/ 76 hours a fortnight, they would accrue personal leave based on an entitlement to a 7.6-hour ‘notional day’. Over the course of a year, an employee would accrue 76 hours of leave, or 10 x 7.6-hour notional days.
  • For a part-time employee working 20 hours a week/ 40 hours a fortnight, they would accrue person leave based on an entitlement to a 4-hour ‘notional day’, as opposed to 7.6 hours. Over the course of a year, the part-time employee would accrue 40 hours of leave, or 10 x 4-hour notional days.
  • For shift workers working varied patterns of work across a fortnight or month, the Court has said employers can determine the value of ‘a day’ by identifying 1/26th of the employee’s ordinary hours over the course of a whole year. This enables the parties to ignore weekly or monthly variations in rosters and assess the total hours of work as a whole. Again, for most full-time shift workers (who ultimately work an average of 38 hours per week over the course of a year), this means that they will be entitled to 10 x 7.6-hour days each year.

This is similar to how personal leave has traditionally been accrued and is in line with custom and practice. In a time where so many employers are uncertain whether they will survive the COVID- rollercoaster and subsequent economic impacts, it’s a welcome relief and a win for common-sense.

If you need some help navigating the rules and obligations around leave entitlements for your business, please reach out to our expert team at HR Gurus.

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