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EmploymentHRLaw

The calculation of personal leave has been ‘put to bed’ by the High Court

By 13 August, 2020No Comments

The High Court has determined that, for the purposes of paid personal/carer’s leave, a “day” means a “notional day”, consisting of 1/10th of an employee’s ordinary hours of work in a two-week (fortnightly) period or 1/26th of the employee’s ordinary hours of work in a year.

How does this work in practice? It means, for example:

  1. A “day” for a full-time employee who works 38 ordinary hours a week (76 hours a fortnight) is 7.6 hours. 10 days, over the course of a year, is equal to 76 hours of personal/carer’s leave.
  2. A “day” for a part-time employee who works 12 ordinary hours a week (24 hours a fortnight) is 2.4 hours. 10 days, over the course of a year, is equal to 24 hours of personal/carer’s leave.
  3. If an employee has a varied pattern of work a “day” means 1/26th of the employee’s ordinary hours over the course of a whole year.

For employers (and payroll in particular) it is a return to the accrual of leave on an hourly basis. When leave is taken it is deducted from the employee’s accrued paid personal/carer’s leave on an hourly basis.

Notional Day vs Working Day

The High Court was asked to determine how the entitlement to paid personal/carer’s leave is calculated under section 96(1) of the Fair Work Act 2009 (Cth) (“FW Act”).

Section 96(1) says:

“For each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave“.

The question for the High Court was whether “day” in “10 days” refers to:

  1. a “notional day”, consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week period, or
  2. a “working day”, consisting of the portion of a 24-hour period that would otherwise be allotted to working and thereby authorising an employee to be absent without loss of pay on ten working days per year (see our previous article about this concept).

The High Court determined (in a split decision) that the concept of a “notional day” is consistent with the purposes of the FW Act, the extrinsic materials and the legislative history.

The High Court remarked that the “working day” construction “would give rise to absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act, the extrinsic materials and the legislative history”. For example, an employee working 36 ordinary hours in a week in three shifts of 12 hours (as was the case in this factual background) would be entitled to ten 12-hour days of paid personal/carer’s leave per annum, or 120 hours, whereas an employee working 36 ordinary hours in a week in five days of 7.2 hours would be entitled to ten 7.2-hour days of paid personal/carer’s leave per annum, or 72 hours.

Accrual

The High Court placed importance on the accrual of paid personal/carer’s leave.

The High Court made the following observations:

  1. an entitlement to paid personal/carer’s leave accrues progressively in the course of a year of service, for all employees, by reference to ordinary hours worked and not by reference to days or working patterns;
  2. employees working the same number of ordinary hours accrue paid personal/carer’s leave at the same rate and, after working the same number of ordinary hours, are entitled to be paid for the same number of ordinary hours, regardless of whether their ordinary hours over a two-week period are worked across ten, six, or five days in that period; and
  3. the purpose of paid personal/carer’s leave is to protect employees against loss of earnings, and it does that by reference to their ordinary hours of work. As a result, the amount of leave accrued does not vary according to their pattern of hours of work.

Flexible working arrangements

The High Court called out that the “working day” construction would not encourage flexible working arrangements (which is an aim of the FW Act).

The High Court commented:

“It would discourage an employer from employing anyone other than one person working a five-day working week, rather than employing a number of people over the course of that week, thereby avoiding employing a number of employees each being entitled to ten days of paid personal/carer’s leave per annum. And, of course, it would not be consistent with assisting employees to balance their work and family responsibilities if the only working arrangement on offer was a five-day working week.”

The way forward

  1. For employers (and payroll in particular) it is a return to the accrual of leave on an hourly basis. When leave is taken it is deducted from the employee’s accrued paid personal leave on an hourly basis.
  2. Part-time employees are entitled to 10 “notional days” of paid personal/carer’s leave per year. A “notional day” is calculated as 1/10th of the employee’s ordinary hours of work in a two-week period. For example, an employee working 30 hours in a two-week period accrues paid personal/carer’s leave on the basis of an entitlement to a 3 hour “notional day”.
  3. Employers should once again check their systems to ensure accruals are being recorded correctly.

If you would like to discuss this further and the implications for your business please contact our Employment + Workplace Relations Partner, Erin Lynch.

Erin Lynch, Partner
M +61 477 330 202
E erin.lynch@vincentyoung.com.au

The contents of this publication do not constitute legal advice and are for general information purposes only.  You should seek legal advice regarding your particular circumstances.