Thinking of some time off work? Get the facts on paid annual leave…

Annual leave may commonly be known as holiday leave or holiday pay. It enables an employee to have time off work for any reason while being paid. Annual leave is an important employee entitlement, so it is essential to appreciate how it accrues. The information in this article will assist in understanding how annual leave accrues, is calculated and paid.

Entitlement

Under the National Employment Standards contained in the Fair Work Act 2009 (Cth) (FW Act) employees are entitled to 4 weeks of paid annual leave for each year of service with their employer. Shiftworkers are entitled to 5 weeks of paid annual leave for each year of service with their employer.

Accrual

An employee’s entitlement to paid annual leave accrues progressively during a year of service according to the employee’s ordinary hours of work.
The ordinary hours of work are the standard hours an employee is guaranteed to work, defined by the number of hours per day and the starting and finishing times. The ordinary hours of work do not include overtime hours and are usually stated in a contract of employment, award or enterprise agreement. For each ordinary hour an employee works, they accrue annual leave. A full-time employee working 38 ordinary hours per week will accrue annual leave as follows:

Yearly accrual

4 weeks of annual leave x 38 ordinary hours per week = 152 hours of annual leave per year of work

Weekly accrual

152 hours of annual leave ÷ 52 weeks per year = 2.923076* hours of annual leave per week of work

Hourly accrual

2.923076 hours of annual leave ÷ 38 ordinary hours per week = 0.076923* hours of annual leave per hour of work

Similarly, a part-time employee will accrue 0.076923* hours of annual leave for each ordinary hour they work.
*The accrual rate has been rounded to six decimal places.

Employees engaged under a specified term or specified task contract also accrue annual leave according to their ordinary hours of work. Casual employees are not entitled to annual leave.Annual leave accrues while an employee is on a period of paid leave, such as annual leave, personal/carer’s leave, compassionate leave or long service leave. Annual leave does not accrue while an employee is on a period of unpaid leave or on an unauthorised absence.

Annual leave accumulates from year to year, so an employee’s accrual does not restart after a year of service or at the end of each calendar or financial year. For example, a part-time employee working 30 hours per week will accrue 120 hours of annual leave per year (30 hours per week x 4 weeks of annual leave per year). If the employee does not take any annual leave, after two years of employment they will have 240 hours of annual leave available (120 hours of annual leave per year x 2 years).

Responding to requests for annual leave

An employee and their employer may agree to the employee taking a period of paid annual leave. Employers must not unreasonably refuse a request for annual leave.
Employers should assess annual leave requests on a case by case basis and accommodate employees where possible. A request for annual leave may be refused where the employer has strong operational grounds for the refusal, e.g. where they are short-staffed.

Payment

Where an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for their ordinary hours of work in the period.Where an employee’s employment ends, and the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable had the employee taken that period of leave during employment.