Guide to Annual Leave for Employers

Annual leave is an important part of any employment relationship. This article will help you understand your workers’ entitlements and your obligations as an employer in all matters related to annual leave in Australia.

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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 stipulated by the National Employment Standards (NES). Employers may choose to offer their staff more annual leave, though, and award and enterprise agreements may provide for additional leave as well. If you decide to offer your staff more than their statutory annual leave entitlement, your employer brand value is sure to rise.
 

Employees can take their leave at any time by agreement with their employer, even during the first 12 months of their employment. An employee’s annual leave is theirs until they use it. If any leave is left over when their employment ends, they’re entitled to get it paid out.

Who is entitled to annual leave?

All full-time and part-time employees (except for casual workers) in Australia are entitled to get paid annual leave. 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. You cannot unreasonably refuse an employee’s request to take annual leave, and there’s no minimum or maximum amount of accumulated annual leave that can be taken at a time.
 

How much annual leave are workers entitled to?

Paid annual leave is one of the ten minimum entitlements of Australian workers under the National Employment Standards. The regulations stipulate that all full-time employees are guaranteed a minimum of four weeks of annual leave. Both full-time and part-time employees get four weeks of paid holidays per year. Shift workers may be entitled to five 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.
 
Related: Australia Leads the Way on Family-Friendly, Flexible Jobs

Frequently asked questions about annual leave

Still have questions? We have compiled the answers to some of the most frequently asked questions about annual leave for you below.
 

1) How is annual leave accumulated?

Annual leave starts to accrue from the first day of employment, even during a worker’s probation period. It accumulates gradually during the course of the year. Any unused annual leave is rolled over to the next year in each case. 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 leave
  • unpaid parental leave
  • unpaid carer’s leave
  • unpaid family and domestic violence leave.

2) Can annual leave be paid out?

Some employees may prefer to have their annual leave paid out in cash instead of taking it as time off. However, for workers covered by an award, an annual leave payout is only possible when their award allows it. Certain rules apply to any payout of annual leave for workers under an award:

  • an employee needs to have at least four weeks of annual leave remaining
  • a written agreement needs to be made each time a worker chooses to have annual leave paid out
  • an employer can’t force an employee to have their annual leave paid 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.

These annual leave payout rules apply to workers not subject to an award or agreement: Award- 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.

3) Do workers on annual leave get 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.
 

4) What if excess annual leave has been accrued?

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 ten weeks of paid annual leave.

If an employee has accrued an excessive amount of leave, the employer and employee should try to reach an agreement on how to reduce this accumulated leave. In the event that they are unable to agree, the employer may direct the employee in writing to take certain periods of annual leave.
 

Such a direction to take annual leave:

  • must be issued in writing
  • must not be inconsistent with any leave arrangement agreed upon by employer and employee
  • is of no effect if it would result in the employee’s remaining annual leave balance amounting to less than six weeks, taking into account any other paid annual leave arrangements
  • must not require the employee to take any period of paid annual leave of less than one week, and
  • must not require the employee to take any period of annual leave that begins less than eight weeks or more than 12 months after the direction is issued.

5) When can employees take their annual leave?

Annual leave can be taken as agreed by employer and employee as soon as it has accumulated. Accrued leave doesn’t have to be taken each year but can be rolled over to the next year. An employer cannot unreasonably refuse an employee’s request to take annual leave, and there are no maximum or minimum periods of leave that have to be taken. Note that an employee is not considered to be on annual leave if their absence:

  • includes a day (or part-day) that is a public holiday in your region, or
  • includes a period of another type of leave (excluding unpaid parental leave) or a period of absence due to community service leave.

Related: Indeed Hiring Resources for Employers
 

6) Can annual leave requests be declined?

All permanent employees are entitled to annual leave, and an employer cannot unreasonably refuse a request for leave. However, according to the Fair Work Commission, an employer can refuse a request where they have a genuine, sound business reason to do so. Considerations may include:

  • the period during which the employee wants to take leave
  • the operational requirements of the business during this period
  • whether the leave would be detrimental to the business, and
  • whether the employee gave the employer reasonable notice.

In addition, some businesses have a period known as a block-out period during which no employees may take annual leave. In some industries, like the retail sector, these periods tend to coincide with major holidays such as Christmas when they are at their busiest.
 

7) Is there a formula to calculate annual leave accruals?

Yes, there is – in fact, there are two!

  1. hours accumulated = calendar days employed × accumulation rate
  2. days accumulated = calendar days employed × accumulation rate / 7.6

According to the National Employment Standards, a full-time working week has 38 hours, and a regular working day therefore has 7.6 hours (38 hours / 5 days). Given that four weeks of annual leave is 20 days (5 days x 4 weeks), you accumulate approximately 0.42 hours of leave every working day (based on the calculation of 20 days × 7.6 hours / 365 days). This means that you accrue just under half an hour of leave each day you work.

To determine exactly how much leave an employee has earned, you can use the official Fair Work Leave Calculator.

 

8) How is accrued annual leave paid out when the employee leaves?

When a worker’s employment ends, employers have to pay them for any unused annual leave they’ve accumulated during their employment. The annual leave paid out to the employee has to be the same amount that they would have received if they’d taken the annual leave during their employment.
 

9) Can an employer direct employees to take annual leave on specific dates?

Employers and their staff usually agree on the period of time the employee wishes to take annual leave. In some circumstances, however, employers can require employees to take annual leave on certain dates. For an employer to be able to direct an employee to take annual leave during a certain period, any award or agreement that applies to the worker must include a term that allows employees to be required to take annual leave in particular circumstances, and this requirement must be reasonable.
 

10) Can annual leave be taken in advance before it has accumulated?

Some awards, enterprise agreements and employment contracts allow employees to take their annual leave in advance, providing they have obtained their employer’s written consent. In many cases, this also includes an agreement between employer and employee that must be signed by both parties. Such an agreement typically states 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. Employers, therefore, need to keep up to date on how annual leave works, what their obligations are and what rights their employees have. Understanding how it all works is crucial to ensuring 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, refer to the Fair Work website.

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