Days vs Hours: Payroll and leave tracking
Over the past couple of years, the issues of employee leave have been widely discussed, especially since Covid-19. The matter of Personal Leave was the subject of a Federal Court case in 2019 and then appealed in 2020 and reviewed by the High Court.
The Higher Court (4-1 in favour) upheld the traditional view of leave days being ‘notional days’ and not 24-hour periods as the Federal Court had ruled. What is the problem? Days verse hours and what to pay.
Employment conditions as set out by Awards and other Employment legislation set annual allowances – as a number of days – for a variety of PAID leave types, the most common being Annual Leave (holidays) and Personal Leave (traditionally called ‘Sick Leave’, hence taking the Aussie Sickie). These leave types accumulate, in that as you work, you earn your leave allowance. If you work a full year, you have earned the annual allowance.
The challenge is finding a fair and equitable way to track & accumulate leave. And when a day of leave is taken – what does the employee receive as pay. It becomes more challenging in environments of overtime and rolling shifts. In the original case the Federal Court, in looking at these more challenging environments, had turned personal leave days into 24-hour periods and said that employees should be paid as such.
The High Court restored Personal Leave to days being time periods based on the employee’s ‘Ordinary Hours’, i.e. notional days. So if an employee takes a day of personal leave, they will be paid a typical day’s pay according to their normal conditions. For a full-time employee working 38 hours a week and 76 hours a fortnight, they would accrue on the basis of an entitlement to a 7.6-hour ‘notional day’. Over the course of a year, an employee would accrue 76 hours of leave, or 10×7.6-hour notional days.
For a part-time employee working 20 hours a week and 40 hours a fortnight, they would accrue on the basis of 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 10×4-hour notional days.
For those where ‘normal’ is not so easy to determine:
For shift workers working varied patterns of work across fortnights or months, 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 10×7.6 hour days each year.
Payroll tracks and pays leave according to the ruling of the High Court and seek to make calculating and tracking leave as simple as possible. There are preference settings and employee settings, to enable you to tailor calculations to your employment environment and the individual conditions per employee. The annual leave allowances are set as a number of days. You can choose to track & accumulate and display leave either as days or as hours. Whichever you choose, it will reflect the employee conditions. To track by hours is recommended where employee conditions could be expected to change relatively frequently. For example: an employee changes from full-time to part-time. If accumulated leave of 10 is based on 8-hour days and now conditions are 4-hour days, in raw terms that accumulated leave has just halved in value. Be assured – Payroll can handle that. It has tools for the employer to adjust the accumulated leave balance for the employee. But if conditions regularly change – tracking by hours means that leave balances don’t require adjustment to keep up. In employee settings – an employee’s ‘ordinary hours’ are nominated for each day of the week. And also their expected pay period. The tally of the ‘days’ is allowed to be more than the pay period. If an employee took a particular day as leave, how many hours should they be paid? This dictates what to enter against each day. If they take the whole pay period off, what should they be paid? This is what is nominated in the pay period. This gives you the flexibility to tailor the part-time verses the full-time employee but to cater for those with rolling rostered days off etc. This is one aspect of the strength of Payroll for your organisation.
Other employment conditions handled are overtime, penalty rates and special shifts.
Links accessed Friday the 13th November 2020.
Other summaries of the decision:
The High Court, and it's ruling: