Taking time off is essential for your employees’ happiness and productivity. But beyond that, every Australian business is legally required to provide annual leave entitlements to their staff.
Are you unsure how annual leave is calculated for various types of employees? Then this guide is for you. We will walk you through calculating and managing annual leave while ensuring compliance with Australian employment laws.
Table of Contents
What is annual leave?
Annual leave, also known as holiday pay, is a type of paid time off that employees accumulate while working, giving them the right to take paid time away from work.
However, annual leave isn’t just a benefit for employees. When businesses implement healthy annual leave policies, they may see higher creativity, happier employees, better problem-solving skills, and even higher profits.
Ultimately, annual leave plays a crucial role in supporting workplace productivity, employee well-being, and overall job satisfaction.
Understanding annual leave entitlements in Australia
In Australia, annual leave entitlements are governed by the National Employment Standards (NES) under the Fair Work Act 2009. The annual leave standard is implemented at the national level, meaning that it doesn’t vary by state or territory.
Both full-time and part-time employees can take four weeks of paid annual leave per year, prorated based on the number of hours they have worked. This means 20 days of leave for a standard full-time employee working 38 hours per week.
For part-time employees, the entitlement is calculated on a pro-rata basis, meaning they accrue leave in proportion to the number of hours they work. For example, if an employee works 20 hours per week, they’ll get 10 days of leave per year.
There are also some exceptions. For example, shift workers may be entitled to an additional week of annual leave, bringing their total to five weeks per year. Meanwhile, casual employees are not entitled to paid annual leave. However, they may receive a higher hourly rate (casual loading) to compensate for this and other entitlements they don’t receive.
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How to calculate annual leave accruals
As a business, it’s important for you to know how much leave your staff is entitled to and make sure that they take it accordingly. It can be easy to calculate leave for standard full-time employees, but it gets trickier when you have different types of contracts and roles within your organisation.
Here is a summary table with simple formula if you are wondering how to work out annual leave accrual.
| Employment Type | Formula |
| Full-time | (4 weeks × 38 hours) ÷ 52 weeks |
| Part-time | (4 weeks × Ordinary hours per week) ÷ 52 weeks |
| Varying hours | (4 weeks × Average weekly hours) ÷ 52 weeks |
Annual Leave Calculator
Leave Entitlement Details
Employment Type:
Average Weekly Hours: 0 hours
Annual Leave Accrual Rate: 0 hours per week
Annual Leave Per Year: 0 hours
Equivalent to: 0 working days per year
Full-time employees
For full-time employees working a standard 38-hour week, annual leave accrues at a rate of 2.923 hours per week. This can be calculated as follows:
Annual leave accrual per week = (4 weeks × 38 hours) ÷ 52 weeks = 2.923 hours
Example:
- Jane works full-time (38 hours per week) and has been employed for 26 weeks.
- Jane’s accrued annual leave = 26 weeks × 2.923 hours = 76 hours (or 2 weeks)
Part-time employees
For part-time employees, the accrual rate is proportional to their ordinary hours of work.
Annual leave accrual per week = (4 weeks × Ordinary hours per week) ÷ 52 weeks
Example:
- Tom works part-time, 20 hours per week, and has been employed for 52 weeks.
- Tom’s annual leave accrual rate = (4 × 20) ÷ 52 = 1.538 hours per week
- Tom’s accrued annual leave = 52 weeks × 1.538 hours = 80 hours (or 10 days)
Employees with varying hours
For employees with varying hours, calculate the average hours worked over the past 12 months (or their period of employment if less than 12 months) to determine their leave accrual rate.
Annual leave accrual per week = (4 weeks × Average hours per week) ÷ 52 weeks
Example:
- Sarah has worked varying hours over the past 12 months, totaling 1,560 hours.
- Sarah’s average weekly hours = 1,560 ÷ 52 = 30 hours
- Sarah’s annual leave accrual rate = (4 × 30) ÷ 52 = 2.308 hours per week
- Sarah’s accrued annual leave = 52 weeks × 2.308 hours = 120 hours (or 15 days)
Long-term employees
Your employees will also become eligible for long service leave after several years of service. This is a one-off benefit that a worker receives after having completed 7-10 years with a company.
The specific entitlements vary by state but typically represent about two months of paid leave on top of annual leave. Employees may also be eligible for another long service leave after having worked several more years for your company.
For example, if Peter has worked for you for ten years and you operate in New South Wales, he can take two paid months off. He will still be entitled to his annual leave for that year. If he keeps working for you for five more years, he will get another month of long service leave, and so on.
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Additional leave benefits beyond the statutory minimum
While the Australian government mandates certain leave entitlements, many employers choose to offer additional leave benefits as part of their comprehensive annual leave policies. This can help your business attract and retain talent, improve employee well-being, and foster a positive workplace culture.
Extended annual leave
Some employers provide more than the standard four weeks of annual leave. For example, they might offer:
- Five or six weeks of annual leave per year
- Additional leave days based on years of service
- The ability to purchase extra annual leave days
- Unlimited leave that allows employees to flexibly take as many days as they like
Extended annual leave can help prevent burnout and improve work-life balance, leading to increased productivity and job satisfaction.
Personal or wellness days
Many companies now offer a set number of personal or wellness days in addition to standard sick leave. An employee can use these days for any purpose, such as mental health breaks, family commitments, or personal appointments, without requiring explanation or documentation.
Recognising the importance of mental health, some organisations explicitly offer mental health days as part of their leave policy. This encourages employees to take time off to focus on their psychological well-being.
Volunteer and study leave
To support corporate social responsibility initiatives, some organisations provide paid time off for employees to volunteer with charitable organisations. This type of leave can range from a few days to a week or more per year.
Others value continuous learning and professional development, providing study leave that allows employees to take time off for exams, coursework, or professional certifications.
Sabbaticals
Long-term employees may be offered extended periods of leave, typically after a certain number of years of service. Sabbaticals can last from a few months to a year and may be paid, partially paid, or unpaid.
For example, if an employee wants to travel or study for several months, they may do so without worrying about losing their job.
Floating holidays
Some employers offer floating holidays, which are additional paid days off that employees can use at their discretion. These holidays are often used to observe cultural or religious holidays not covered by standard public holidays.
Beyond the legally required annual leave, your company can design its own annual leave policy. Often, creating a more supportive and flexible work environment helps attract and retain top talent. However, it’s important to carefully manage these additional leave offerings to ensure they align with business needs and are administered fairly across the workforce.
Using an annual leave calculator
If you are wondering, “How do I calculate annual leave accrual?” or “How much annual leave do you accrue per week rather than year?” You are not alone. Properly calculating annual leave is crucial but can be a daunting task for employers.
Annual leave calculators can significantly simplify the process of calculating entitlements and accruals.
For example, the Fair Work Ombudsman Calculator is provided for free by the Australian government. You can use it to determine leave accruals and entitlements based on employment type and working arrangements.
Another option is to use payroll software. Many payroll systems include built-in leave calculators that automatically track and calculate leave entitlements based on your specific business rules and employee data.
Of course, you can also use simple spreadsheet templates using Excel or Google. This works best for smaller businesses with less complex annual leave policies.
For complex cases or to ensure compliance with specific industry awards or enterprise agreements, consider:
- Consulting with an HR professional or employment lawyer
- Contacting your local employment authority for guidance
- Using specialised leave management software that can handle complex leave rules and scenarios
Remember, the goal is to ensure accurate leave calculations while maintaining compliance with relevant employment laws and regulations.
Annual leave payouts: How and when they apply
Employees may be entitled to annual leave payouts in certain circumstances. This usually happens when an employee leaves their post but still has accrued unused annual leave.
The payout amount should be calculated at the employee’s base rate of pay for their ordinary hours of work. If applicable under the relevant award or agreement, this may include annual leave loading.
Example:
- John is leaving his job and has 80 hours of unused annual leave. His base hourly rate is $25.
- John’s annual leave payout = 80 hours × $25 = $2,000
Another reason might be that an employee has too much leave accrued and they opt to receive an annual leave payout. However, this is not advisable as annual leave is designed for rest, not as an additional source of income.
In such cases, employees may be able to cash out their annual leave while still employed. This is only allowed if:
- The relevant award or agreement permits cashing out.
- The employee retains at least four weeks of accrued leave after the cash-out.
- There is a written agreement for each cashing-out arrangement.
- The employee is paid at least the full amount they would have received if they had taken the leave.
Remember that annual leave is a legal right of every employee. While employers have the right to refuse annual leave — for example, during peak work season or when other employees are off — they also have the obligation to provide their staff with time off.
Common mistakes to avoid in annual leave calculations
Accurate annual leave calculations are crucial for maintaining compliance with employment laws and ensuring fair treatment of employees. However, several common mistakes can occur in this process. Here are some ways you can avoid making common mistakes when it comes to annual leave accruals.
Misinterpreting accrual rates for part-time employees
Unlike full-time employees, part-time employees accrue leave on a pro-rata basis, which can be confusing to calculate. To avoid this mistake, make sure to use a clear formula based on the employee’s ordinary hours of work.
For instance, if a part-time employee works 20 hours per week, their annual leave accrual would be calculated as (4 weeks × 20 hours) ÷ 52 weeks. You should regularly review these calculations and use automated systems to ensure accuracy.
Incorrect leave loading calculations
Leave loading is an additional payment on top of an employee’s base pay rate during annual leave, typically 17.5%. However, not all employees are entitled to leave loading, and the rates can vary depending on awards or agreements.
To avoid errors, you need to understand who is entitled to leave loading and at what rate. Consider implementing a system that automatically applies the correct leave loading based on employee classifications to help prevent miscalculations.
Errors in leave payouts
Improperly calculating leave payouts can be a costly mistake. To avoid this, ensure that all your records are updated and that you know how much leave every employee has accrued. When calculating payouts, include any applicable leave loading and ensure that the calculation is based on the employee’s ordinary hours of work.
Using a checklist for employee departures can help ensure all necessary steps are taken, including accurate leave payout calculations.
Forgetting about changes in employment status
When an employee’s status changes from part-time to full-time or vice versa, or if their regular hours change, you will need to adjust their leave accrual rate accordingly. Using a system that flags any changes in employment status or hours can prevent errors related to such changes.
You can also regularly review employee records and adjust leave accruals as needed. Clear communication with employees about how changes in their work arrangements affect their leave entitlements is also crucial.
Not accounting for unpaid leave
Generally, employees do not accrue annual leave during periods of unpaid leave, such as unpaid parental leave or leave without pay. To properly calculate accruals during these times, maintain detailed records of all types of leave taken by employees.
Ensure your leave management system can differentiate between paid and unpaid leave and adjust accruals accordingly. Regular audits of leave records can help identify and correct any discrepancies.
To mitigate these common mistakes, employers should adopt several best practices.
- Regularly review and update leave records to catch and correct any errors promptly.
- Use reliable payroll software to automate many aspects of leave calculation and reduce the risk of human error.
- Clearly communicate leave entitlements to employees to prevent misunderstandings and ensure transparency.
- Consult with legal experts or the Fair Work Ombudsman to understand complex leave situations and ensure compliance with current regulations.
These best practices will help you maintain accurate annual leave calculations, ensuring fair treatment of employees and compliance with employment laws.
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FAQ
How many days of annual leave do full-time employees get in Australia?
Full-time employees in Australia are entitled to four weeks of paid annual leave per year, which typically equates to 20 days based on a standard 38-hour work week.
Can annual leave be cashed out in Australia?
Yes, annual leave can be cashed out in Australia, but only under certain conditions. These include having a written agreement, retaining at least four weeks of accrued leave, and ensuring the relevant award or agreement allows for cashing out.
How is annual leave accrued for part-time employees?
Part-time employees accrue annual leave on a pro-rata basis, proportional to their ordinary hours of work. The accrual rate is calculated as (4 weeks × ordinary hours per week) ÷ 52 weeks.
What happens to unused annual leave when an employee resigns?
When an employee resigns, they receive an annual leave payout for any unused annual leave they have accrued. This payout should be calculated at their base rate of pay for their ordinary hours of work.
How does annual leave work for casual employees in Australia?
Casual employees in Australia are not entitled to paid annual leave. Instead, they typically receive a higher hourly rate (casual loading) to compensate for this and other entitlements they don’t receive.
Final thoughts
As an employer, it is essential that you understand and accurately calculate annual leave entitlements for all your employees. This comprehensive guide is designed to help you do so while ensuring compliance with Australian employment laws.
Whether you are working on your annual leave policy or preparing other legal documents for your small business — Lawpath can help. Get in touch to learn more.
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