The Annual Christmas close down

With the Christmas period soon upon us, many businesses will be considering whether to close down and for how long. Strict rules apply for close downs, so everyone needs to be prepared.

The rules governing periods of close down for employers and employees under the national workplace relations system are derived from the National Employment Standards (NES) in the Fair Work Act and modern awards or enterprise agreements.

Award/agreement covered employees

The NES permits modern awards and agreements to allow employers to direct employees to take annual leave if the requirement is reasonable. Many modern awards include such provisions in relation to annual close downs.

Award provisions for close downs vary considerably:

• Some limit a close down to the period around Christmas and New Year.
• A number of awards allow for the employer to have 1 or 2 separate close down periods in a year; additionally, some of these provide for up to 3 close downs in a year by majority employee agreement. Generally, one close down must be for at least 14 days, including non-working days.
• In some awards, if a workplace closes down more than once in a year, one period must be for at least 21 days, including non-working days, unless the employer and a majority of employees agree to a lesser period.
• Some awards do not limit the number or length of close downs.
• Some awards provide for one close down, but do not specify the length.
• Some awards do not expressly provide for close downs.

Implementing a Close Down

Notice

Modern awards with close down provisions require the employer to provide employees with notice when directing annual leave to be taken. The period of notice is generally either 4 weeks or 1 month, with some awards requiring notice of 2 months. Several awards require the notice to be in writing; however, it is recommended that employers give notice in writing in all cases.

The following is an example of a notice to employees of a close down:

Christmas / New Year Close down
Employees are advised that the company’s operations will close down for the purposes of granting annual leave to employees (other than those employees specifically notified to the contrary), from the ordinary finishing time on Friday 23 December 2022. Work will resume at the normal commencement time on Tuesday 3 January 2023.

What if an employee does not have enough accrued annual leave to cover the close down period?

Many modern awards have a provision that enables an employer to place an employee on unpaid leave for any period of the close down if the employee does not have enough leave accrued. Recently, the Fair Work Commission expressed a view that such award provisions are inconsistent with the Fair Work Act and plans to vary the awards. At the time of writing, there have been no changes to awards but employers should check the latest version of their award online to determine if there has been a change that affects them.

The purpose of a close down is to allow employees to take their annual leave, so whilst there may be a provision allowing the employer to place an employee on unpaid leave, this would only apply in limited cases. For example, this may include a new employee who has not accrued sufficient annual leave to cover the period.

Employers that have employees covered by an award which does not contain close down provisions are encouraged to call the Fair Work Ombudsman for guidance.

Managing requests for annual leave

Employers intending to exercise their right to implement an annual close down period are advised to manage annual leave requests from employees during the year to ensure that employees will have sufficient annual leave accrued at the time of the close down.

An employer may have regard to the operational requirements of the business in considering requests for annual leave (which may include the need to keep sufficient annual leave accrued for a planned close down) but must not unreasonably refuse to grant leave.

How to calculate annual leave loading using an example under the Retail Award

Employees covered by an award may have an entitlement to be paid annual leave loading during periods of annual leave.

Leaving loading is paid ‘during a period of leave’ and is not calculated on a day-by-day basis.

Below is the annual leave loading clause in the General Retail Industry Award 2020. Employers should check the clause contained within the award relevant to their employees as it may differ.

28.3 Additional payment for annual leave

https://direct.employmentplus.com.au/admin/entries/newsArticles/224103-the-annual-christmas-close-down#(a) During a period of paid annual leave an employer must pay an employee an additional payment in accordance with clause 28.3 for the employee’s ordinary hours of work in the period.

(b) The additional payment is payable on leave accrued.

(c) For an employee other than a shiftworker the additional payment is the greater of:

(i) 17.5% of the employee’s minimum hourly rate for all ordinary hours of work in the period; or

(ii) The employee’s minimum hourly rate for all ordinary hours of work in the period inclusive of penalty rates as specified in clause 22—Penalty rates.

(d) For a shiftworker the additional payment is the greater of:

(i) 17.5% of the employee’s minimum hourly rate for all ordinary hours of work in the period; or

(ii) The employee’s minimum hourly rate for all ordinary hours of work in the period inclusive of penalty rates for shiftwork as specified in clause 25—Rate of pay for shiftwork.

Example:

If a full-time shop assistant whose ordinary hours of 7.6 per day are worked Tuesday to Saturday applies for a week of annual leave the question is: which is greater, 17.5% on the entire period or 25% applied to the Saturday hours (and 0% on the other days of leave)?

Option 1) 17.5% applied to the whole period of leave:

38 x $23.38 = $888.50 per week, base rate. On this amount, 17.5% leave loading = $155.49

Option 2) With the Saturday 25% penalty applied to the period of leave.

30.4 hours Tuesday-Friday + 0% loading.

25% loading applied on $177.69 (base rate for 7.6 hours on Saturday) = $44.42

In this scenario, 17.5% applied to the whole period of leave is greater than 25% applied to the Saturday rate, so the 17.5% would be the applicable leave loading.

Where to find more information

Go to the Fair Work Ombudsman website