Leave in advance: are monies recoverable on termination?

Leave in advance: are monies recoverable on termination?

By Paul Munro on 7 February 2018 Can we recover long service leave paid in advance if an employee resigns before 10 years' service?

This question was recently sent to our Ask an Expert service.

Q We have an employee who has requested long service leave to take an extended overseas holiday. He has been employed for about nine years and will not be entitled to take long service leave until 10 years’ continuous service.

The employee has requested the equivalent of nine years' accrual of leave (about 11.7 weeks leave). While management is sympathetic to his request, our concern whether we could recover the long service leave taken in advance if the employee resigned before serving 10 years.

Is long service leave recoverable if an employee resigns prior to having an entitlement to long service leave? The employee is employed in South Australia.

A The Long Service Leave Act 1987 [SA] (s7(6)) provides that if employment is terminated before the long service leave is accrued, an employer may recover the difference between the amount paid in advance and their actual accrual of leave on termination.

Under South Australian legislation, an employee who has served at least seven years and less than 10 years’ continuous service with an employer is entitled to pro rata long service leave on termination for any reason, except where the employee does not lawfully leave their employment or the employee is terminated for reasons of serious misconduct.

In this case, the amount of accrued leave after nine years’ service would cover the long service leave taken in advance.

Other jurisdictions

Similar terms exist in other Commonwealth, state and territory long service leave legislation with respect to recovery of monies paid for leave taken in advance. For example, the Long Service Leave Act 1995 [NSW] provides that where an employer and employee agree, a period of at least one month may be taken wholly or partly in advance.

Where long service leave is taken in advance and the employment is terminated by either party, the deduction to be made from any pay due on termination is calculated as follows:
  • if the employee has not become entitled to leave – the amount paid to the employee as ordinary pay for the excess, if any, over the employee’s total entitlement of the period or total periods of long service leave on ordinary pay given and taken;
  • the deduction to be made shall not exceed the amount of ordinary pay that would have been payable for the period of leave, or excess leave as the case may be, had it been taken on the termination of the employee.
The effect of this is that if, upon termination, long service leave taken in advance exceeds an employee’s entitlement, an employer may make a deduction (from any monies owed to an employee) in relation to the excess leave taken in advance.

This deduction will be the lesser of, firstly, the amount of ordinary pay actually paid to the employee at the time the excess leave was taken, or secondly, the amount of ordinary pay which would have been payable if such leave had been taken on termination.

Reference should be made to the relevant long service leave legislation or the applicable award-derived long service leave term to determine whether monies paid in relation to long service leave taken in advance are recoverable.

Personal/carer’s leave in advance

It is uncommon for a modern award or an enterprise agreement to contain terms which allow an employer to recover personal/carer’s leave paid in advance of accrual. The Clerks – Private Sector Award 2010 does not contain such a term. Consequently, an employer cannot offset any excess payment of paid personal/leave against any monies due to the employee upon termination.

Recovery of overpayment

An employer may believe that recovery of personal/carer’s leave paid in advance is permissible because it is an overpayment. This is only possible if the overpayment was a mistake on the employer’s part, not a deliberate payment in advance. In effect, the only method by which an employer can recover an overpayment made to an employee and comply with the Fair Work Act (sections 324 and 326.) is by a court order, though this may only be necessary where an employee refuses to agree to enter into an arrangement where repayment is made to an employer.

Although this is not specifically addressed under the reasonable deductions provisions of the Fair Work Act or its regulations, it is usually implied in an employee’s contract of employment that an employer can recover monies that were mistakenly paid to an employee, although this will normally depend on the reason for the overpayment.

Annual leave in advance

Many modern awards allow an employer to recover annual leave paid in advance of accrual when an employee’s employment terminates.

For example, the Clerks – Private Sector Award 2010 clause 29.4 provides that an employer may allow an employee to take annual leave either wholly or partly in advance before the leave has accrued. Where paid leave has been granted to an employee in excess of the employee’s accrued entitlement, and the employee subsequently leaves or is terminated, an employer is entitled to deduct the amount of leave in advance still owing from any remuneration payable to the employee upon termination of employment.

The bottom line: Generally, State and territory long service leave legislation permits the employer to recover any monies on termination where the employee has been granted long service leave in advance but is not eligible for pro rata long service leave on termination or has insufficient accrual of leave at the time of termination to cover the long service leave taken in advance.

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