If you run a business in Australia, there will be times when you need staff to take annual leave on a schedule that isn't their own choice. A Christmas shutdown, a slow period, or a staff member carrying a large leave balance can all raise the same question: can you actually direct someone to take leave, or do you need their agreement?
The short answer is that you can require employees to take annual leave, but only in specific situations and only when you follow the right process. The power to direct leave does not come from the National Employment Standards (NES) itself. Instead, it comes from the applicable modern award or enterprise agreement, or in limited cases, from the general law of reasonable direction for award-free employees.
This article explains when you can require employees to take annual leave, what rules apply, and how to avoid the common traps that lead to disputes.
The annual leave entitlement under the NES
Before looking at when you can direct leave, it helps to understand the baseline entitlement. Under Division 6 of the Fair Work Act 2009 (Cth), the NES gives employees the following minimum annual leave:
- full-time employees: four weeks of paid annual leave per year
- part-time employees: four weeks on a pro-rata basis, calculated according to their ordinary hours
- shift workers: may be entitled to five weeks if their award or enterprise agreement provides for it
- casual employees: generally do not accrue paid annual leave
Annual leave accrues progressively from year to year and continues to accrue while an employee is on paid leave. The NES sets the floor, but your obligations may be higher if your award or enterprise agreement says so.
Crucially, nothing in the NES gives employers a general power to tell an employee when to take that leave. The power to direct leave must come from elsewhere.
When an employer can direct annual leave
The Fair Work Ombudsman confirms that an employer can only direct an employee to take annual leave in limited situations. There are two recognised pathways:
1. Under a modern award or enterprise agreement
Most modern awards and enterprise agreements contain clauses that allow an employer to direct annual leave in specific circumstances. These clauses typically address two situations:
- Workplace shutdowns — a clause permitting the employer to require employees to take annual leave during a period when the business closes, such as over Christmas and New Year.
- Excessive leave accrual — a clause setting out when an employee's leave balance is considered excessive, and the process the employer can follow to direct them to reduce it.
The exact rules vary from one instrument to another. You must check the specific award or enterprise agreement that covers each employee. You cannot assume that the same notice period, threshold, or process applies across your workforce.
2. For award and agreement-free employees
Employees who are not covered by a modern award or enterprise agreement (sometimes called award-free employees) can be directed to take annual leave if the direction is reasonable. The Fair Work Ombudsman states that a reasonable direction can include requiring the employee to take leave when their balance is excessive.
However, the direction must genuinely be reasonable in all the circumstances. There is no defined threshold for "excessive" for award-free employees, and no prescribed notice period in the legislation. You need to assess what is fair and practical given the employee's role, personal situation, and the business need.
Workplace shutdowns
The most common reason Australian businesses direct annual leave is a temporary shutdown. Many businesses close over the Christmas and New Year period, or for maintenance, stocktake, or seasonal breaks.
If your employees are covered by an award or enterprise agreement
Most modern awards include a shutdown clause. These clauses typically:
- permit you to direct employees to take annual leave during the shutdown
- require you to give a minimum period of written notice (this varies between instruments)
- set out what happens if an employee does not have enough accrued leave to cover the shutdown period
- require you to consult with employees before issuing the direction
If a public holiday falls during the shutdown, it should generally be treated as a paid public holiday and not deducted from the employee's annual leave balance.
If your employees are award-free
For award-free employees, a well-drafted employment contract can set expectations about shutdowns. But even with a contract clause, any direction to take leave must be reasonable, consistent with the NES, and made with appropriate notice. A contract cannot override the NES or give you a power that does not otherwise exist at law.
If an employee does not have enough accrued leave to cover the shutdown, you cannot simply place them on unpaid leave unless an award clause or agreement allows it, or the employee agrees. Some awards allow unpaid leave by agreement; others are silent. Proceed carefully and seek advice before directing unpaid leave in this situation.
Excessive leave accrual
Employees who accumulate large annual leave balances can create practical problems for a business — from budgeting for the liability to managing coverage when leave is eventually taken. However, the concept of "excessive" leave is not defined by the NES. It is defined in the applicable award or enterprise agreement.
Typical features of excessive leave clauses
While every instrument is different, excessive leave clauses commonly include:
- a threshold that defines what counts as excessive (for example, more than eight weeks for a full-time employee)
- a consultation requirement before the employer can issue a direction
- a minimum notice period that the employer must give before the leave starts
- a minimum balance rule specifying how much leave must remain after the directed period
- a process for the employee to initiate a direction if they want to take leave and the employer is not accommodating it
Because these rules live in the award or enterprise agreement, you must follow the specific clause that applies to your employee. Different groups within your workforce may be covered by different instruments with different rules.
For award and agreement-free employees, the Fair Work Ombudsman confirms that an employer can require the employee to take paid annual leave if the requirement is reasonable. There is no statutory threshold to trigger this power, so you should document your reasoning and take into account the employee's circumstances.
What makes a direction reasonable
Whether you are directing leave under an award clause or for an award-free employee, the direction must be reasonable. The Fair Work Ombudsman treats reasonableness as a practical test that considers:
- whether there is a genuine business need, such as a shutdown or a legitimate concern about excessive accrual
- the timing of the direction and whether it avoids periods when the employee's presence is critical
- the amount of leave directed and whether it is proportionate to the business need
- the employee's personal circumstances, including pre-booked commitments and caring responsibilities
- whether adequate notice has been given
A direction that is arbitrary, punitive, or designed to avoid paying out leave on termination is unlikely to be reasonable. The safest approach is to consult with the employee first, aim for agreement where possible, and document everything in writing.
A worked example
Suppose you run a small retail business with six employees. Four are covered by the General Retail Industry Award, and two are award-free administrative staff. You plan to close the business for two weeks over Christmas and New Year.
For the award-covered employees, you check the Retail Award and find a shutdown clause that allows you to direct annual leave provided you give at least four weeks' written notice. You send a written notice to each employee, confirm the shutdown dates, and explain that public holidays falling within the period will not be deducted from their annual leave balance.
For the award-free employees, your employment contracts contain a clause about the annual shutdown, but you cannot rely on that clause alone. You speak to each employee individually, explain the shutdown, and confirm the dates. Because the direction is for a genuine business closure, the employees have sufficient accrued leave, and you have given reasonable notice, the direction is likely to be reasonable. You confirm the arrangement in writing.
In this scenario, the key difference is that the award-covered employees have a clear clause and a defined notice period, while the award-free employees require a subjective test of reasonableness. The same outcome can be reached, but the process and the legal basis differ.
How Artificer Legal can help you manage directed annual leave
Getting the process right matters. A direction that does not comply with the applicable award, enterprise agreement, or the requirement of reasonableness can lead to a dispute, an adverse finding by the Fair Work Commission, or an underpayment claim.
An Artificer Legal practitioner can help you:
- identify which modern award or enterprise agreement covers each of your employees
- locate and interpret the shutdown and excessive leave clauses in your applicable instruments
- review your employment contracts to ensure any shutdown or leave direction provisions are consistent with the NES and any applicable award
- draft clear written directions and notices that comply with the required process
- advise on how to handle employees who do not have enough accrued leave to cover a shutdown
- assess whether a proposed direction is reasonable in your specific circumstances
A short review before you issue a direction can prevent a dispute that takes months to resolve.
Key takeaways
The single most important thing to understand is this: you do not have a general power to direct annual leave under the NES. That power only exists where a specific award or enterprise agreement clause gives it to you, or where the direction is reasonable for an award-free employee.
- Full-time and part-time employees are entitled to four weeks of paid annual leave under the NES, but the NES itself does not let you decide when they take it.
- You can direct annual leave during a genuine workplace shutdown if your award or enterprise agreement allows it, or if the direction is reasonable for award-free employees.
- You can direct an employee with excessive leave to reduce their balance, but only by following the process set out in their award or enterprise agreement — or, for award-free employees, by giving a reasonable direction.
- The definition of "excessive" leave, the notice period, and the minimum balance rules all live in the applicable industrial instrument, not in the NES. Check the instrument before you act.
- Public holidays falling within a period of directed annual leave should not be deducted from the employee's leave balance.
- If you are unsure whether a direction is permitted or reasonable, seek advice before issuing it. Correcting course early is far easier than defending a dispute later.