What is annual leave?
Annual leave allows employees to be paid while having time off from work. In Australia, the minimum annual leave entitlement is established by the National Employment Standards (NES), with the standard entitlement being four weeks of annual leave each year for full-time employees.
You may choose to offer your staff more annual leave, though, and awards and agreements may provide for additional leave as well. Offering more than the statutory annual leave entitlement could boost your employer brand significantly.
Employees can take their leave at any time by agreement with their employer, even during the first 12 months of their employment. Employees can take as much annual leave as they have accrued, with no minimum amount required to be taken at once.
There is no minimum amount of annual leave that must be taken at a time, providing flexibility for both employees and employers. An employee’s annual leave is theirs to use as they wish, and you cannot reasonably refuse an employee’s request to take annual leave. If any leave is left over when their employment ends, they’re entitled to get it paid out.
Managing leave can get complicated, so it’s a good idea to develop a time-off policy, which contains clear guidelines for employees about the process for requesting leave.
Who is entitled to annual leave?
All full-time and part-time employees in Australia are entitled to get paid annual leave. Casual employees are not entitled to paid annual leave; however, they receive either a casual loading or a specific minimum casual salary rate instead. As an employer, you must pay annual leave at the employee’s base rate of pay for their usual hours during the period of leave, excluding extra payments such as allowances, penalties and overtime.
Extra payments, such as annual leave loading or penalty rates, may be payable during annual leave if required by awards and agreements. Annual leave loading, also known as leave loading, is an additional payment that employees receive on top of their minimum hourly rate while they are on leave. Most modern awards contain provisions for leave loading. The rate is usually whichever is higher out of:
- a 17.5% loading or
- the employee’s usual weekend penalty rates (plus shift loading for shift workers).
How much annual leave are workers entitled to?
Paid annual leave is one of the 10 minimum entitlements of Australian workers under the National Employment Standards. Both full-time and part-time employees get a minimum of four weeks of paid annual leave per year, and holiday pay is the pay employees receive while taking annual leave. Shift workers may be entitled to 5 weeks.
Many workers save up their annual leave to take a long holiday, but it can also be taken one day or a couple of days at a time, with the calculation of hours of annual leave depending on whether the person is a full-time or part-time employee.
Annual leave accrues based on the ordinary hours worked by a full-time employee or part-time employee. Employees accrue annual leave hours based on their ordinary hours of work.
Annual leave and employment contracts
Employment contracts should set out your employees’ annual leave entitlements as part of their pay and conditions. Both the amount of paid annual leave and the process for taking leave, including any notice requirements, how leave is approved and the rate of pay during annual leave, should be specified in your staff’s employment contracts.
Employment contracts may offer more, but not less than the minimum annual leave entitlements set out in the NES, relevant awards or enterprise agreements. Any additional benefits or conditions, such as extra leave or leave loading, should be detailed in the contract.
You must provide your employees with a copy of the contract and ensure it is accessible at all times. This helps prevent misunderstandings and ensures both parties are aware of their responsibilities when it comes to taking leave.
Annual leave and enterprise agreements
Enterprise agreements establish the terms and conditions of employment for the employees covered, and they are made jointly by employers and employees (or employee representatives). These agreements may include provisions for extra leave, flexible arrangements for taking annual leave or higher rates of pay during leave periods. For example, an enterprise agreement might grant additional days of paid annual leave or specify a higher leave loading than the relevant award.
All enterprise agreements must be approved by the Fair Work Commission and must not provide less favourable conditions than the NES or applicable awards. It’s important to ensure that any enterprise agreements you enter into comply with all legal requirements and your employees are informed about their entitlements under the agreement.
Public holidays and annual leave
Public holidays are recognised days of significance, and employees are generally entitled to not work on these days without it affecting their annual leave balance. If a public holiday falls during a period when an employee is taking paid annual leave, the public holiday does not count as a day of annual leave, and the employee must be paid for the public holiday at their ordinary rate of pay.
If an employee is required to work on a public holiday, they may be entitled to penalty rates or additional payments as specified in their award or enterprise agreement. It’s important to check the relevant award or enterprise agreement to understand both your and your employees’ rights and obligations regarding public holidays and annual leave entitlements.
Annual leave accrual
Annual leave starts to accrue from the first day of employment, even during a worker’s probation period. It accumulates gradually during the year. Any unused annual leave is rolled over to the next year. Annual leave continues to accumulate when an employee is on any of the following types of leave:
- paid leave (e.g. paid annual leave, paid sick leave or carer’s leave)
- community service leave (e.g. for jury duty)
- long service leave.
Annual leave does not continue to accumulate when the employee is on any of the following types of leave:
- unpaid annual leave
- unpaid sick and carer’s leave
- unpaid parental leave.
Calculating annual leave accrual
Both full-time and part-time employees are entitled to receive four weeks of annual leave each year. The amount of leave they get is based on how many hours they work each week. Here is a breakdown of how to calculate accrued annual leave for your full-time and part-time employees.
Full-time employee
A full-time employee working the standard 38 hours per week is entitled to receive 152 hours of annual leave each year. This is 38 hours multiplied by 4 weeks.
Part-time employee
A part-time employee who works 20 hours per week is entitled to the equivalent of 4 weeks of work, which is 80 hours of annual leave each year. This is calculated by multiplying 20 hours by 4 weeks.
Accrual rate
Here are the formulas you can use to calculate how much leave your full and part-time employees accrue each day.
Full-time employee:
- 152 hours of annual leave ÷ 52 weeks = 2.923 hours each week.
- 2.923 hours ÷ 5 days = 0.5846 hours each workday.
Part-time employee:
- 80 hours of annual leave ÷ 52 weeks = 1.538 hours each week.
- 1.538 hours ÷ 5 days = 0.3076 hours each workday.
To help you calculate your employees’ accrued annual leave, you can use the official Fair Work Leave Calculator, which provides specific information on annual leave accruals for different types of employees.
Annual leave payout
Some employees may prefer to have their annual leave paid out in cash instead of taking it as time off. However, employees covered by an award can only have their annual leave paid out if their award allows it. Certain rules apply to cashing out annual leave for workers under an award:
- An employee needs to have at least 4 weeks of annual leave remaining.
- A written agreement needs to be made each time a worker chooses to have annual leave cashed out.
- An employer can’t force an employee to have their annual leave cashed out in lieu of time off.
- The payment for cashed out annual leave must be the same amount the employee would have been paid if they had taken the leave.
- Some awards and agreements require specific conditions to be met before annual leave can be paid out, such as mandatory record-keeping or additional entitlements.
These annual leave payout rules apply to workers not subject to an award or agreement:
Award-free and agreement-free employees can negotiate with their employer to have their annual leave paid out. The following conditions must be met:
- The agreement must be in writing.
- The employer pays the employee the same amount the employee would have received if they had taken the leave.
- The employee has at least four weeks left in their leave balance after the rest is paid out.
Annual leave payout on termination
When your employee’s employment ends, their final pay must include any unused annual leave they’ve accumulated during their employment. The annual leave paid out to your employee has to be the same amount that they would have received if they’d taken the annual leave during their employment.
Annual leave and superannuation
Annual leave that is either taken or paid out during the normal course of employment qualifies for super payments. Annual leave that is cashed out on termination, on the other hand, doesn’t get included in superannuation calculations under the current legislation. However, your organisation may have a policy in place that allows for these payments to be included when calculating super.
Excessive annual leave accrual
If your employee has accumulated an excessive amount of leave, you and your employee should first try to agree on how to best reduce the accumulated leave, in line with the minimum standards. If you can’t reach an agreement, you may direct your employee to take forced annual leave.
Under the National Employment Standards, an employee is considered to have accrued excess leave if:
- the employee has accrued more than eight weeks of paid annual leave, or
- in case of shift workers, if they have accrued more than 10 weeks of paid annual leave.
Most modern awards set out the rules for if and when employers can direct employees to take annual leave. If an employee isn’t covered by an award or registered agreement, you may still be able to require them to take annual leave, as long as it is a reasonable requirement. It may be considered reasonable if:
- your employee has accumulated excessive annual leave
- your business is temporarily shut for a period, for example, between Christmas and New Year.
Taking annual leave in advance
Some awards, enterprise agreements and employment contracts allow employees to take their annual leave in advance, providing they have written consent from their employer. The agreement usually needs to be signed by both the employer and employee. Some awards and registered agreements state that if the employee takes leave in advance and doesn’t accrue it all back before their employment ends, then the employer can deduct the amount still owing from their final salary payment.
Annual leave rights and obligations
Over time, annual leave has transformed from a rare entitlement to a standard right for Australian employees. It has become a firm fixture in the Australian work landscape and is unlikely to ever be abolished. That’s why it’s important to keep up to date on how annual leave works, what your obligations are and what rights your employees have.
Understanding how it all works can help you to ensure that all annual leave is accrued, managed and processed correctly in your workplace. For the latest government information on annual leave entitlements and employer obligations in Australia, you can check the Fair Work website.
