Unlocking Annual Leave: The Ultimate Guide

Unlocking Annual Leave: The Ultimate Guide

Table of content

  1. What is annual leave?
  2. Who gets annual leave?
  3. How much annual leave does an employee get?
  4. How does annual leave accumulate?
  5. When can annual leave be taken?
  6. What payments are required when annual leave is taken?
  7. How is annual leave paid out at termination?
  8. Annual Leave FAQs
  9. How does Workstem simplify leave management?

This guide offers a comprehensive overview of annual leave management, covering entitlements, accrual, timing, and payouts, to help employers confidently navigate the complexities of employee benefits and avoid misunderstandings and disputes.

What is annual leave?

Annual leave, or holiday pay, is a form of paid leave that allows employees to take time off work while still receiving their regular pay. It is a benefit provided to promote work-life balance and employee well-being.

The minimum entitlement is determined by the National Employment Standards (NES), but additional leave may be provided by Awards, Enterprise Agreements, or employers.

Annual leave loading is an extra amount paid to employees on top of their base pay while on annual leave, compensating them for lost opportunities to earn overtime and other penalties.

Who gets annual leave?

All employees, excluding casual employees, are entitled to annual leave.This entitlement is provided by the National Employment Standards (NES).

While Awards, enterprise agreements, and other registered agreements cannot offer less annual leave than the NES, they can provide additional annual leave benefits.

How much annual leave does an employee get?

Full-time and part-time employees

Full-time and part-time employees get 4 weeks of annual leave, based on their ordinary hours of work.

Example: annual leave for part-time employees

Employee Name

Employment Type Weekly Hours Annual Leave Entitlement
Emily Part-time 20 hours

80 hours (4 weeks)

In this example, Emily is a part-time employee who works 20 hours per week. As per her employment agreement, she is entitled to accumulate 80 hours of annual leave, which is equivalent to 4 weeks of work for her.

Shiftworkers

Shiftworkers may get up to 5 weeks of annual leave per year.

However, some awards and agreements may provide for additional leave beyond the minimum outlined in the National Employment Standards (NES).

How does annual leave accumulate?

Annual leave accumulates gradually throughout the year based on the employee’s working hours and the type of paid leave they take. Here is a summary of how annual leave accumulates:

Paid leave that contributes to annual leave accumulation

Paid annual leave When an employee takes their entitled annual leave, the corresponding number of days or hours will accumulate as annual leave.
Paid sick and carer’s leave If an employee takes paid sick or carer’s leave, the duration of the leave will contribute to the accumulation of annual leave.
Paid family and domestic violence leave Similar to paid sick and carer’s leave, if an employee takes paid leave for family and domestic violence reasons, it will contribute to the accumulation of annual leave.
Community service leave Paid leave taken for community service purposes, including jury duty, will accumulate annual leave.
Long service leave Paid long service leave also contributes to the accumulation of annual leave.

Unpaid leave that does not contribute to annual leave accumulation

Unpaid annual leave If an employee takes unpaid annual leave, no annual leave will accumulate during that period.
Unpaid sick/carer’s leave Similarly, unpaid sick or carer’s leave does not contribute to the accumulation of annual leave.
Unpaid parental leave When an employee takes unpaid parental leave, no annual leave will accumulate during that time.
Paid Parental Leave Scheme The Australian Government’s Paid Parental Leave Scheme is not considered paid leave for the purpose of annual leave accumulation. If an employee is receiving payments from the scheme while on unpaid leave from their employer, no annual leave will accumulate during that period.
Cashed out annual leave If an employee chooses to cash out a portion of their annual leave, the days or hours that have been cashed out will not accumulate as annual leave.

It’s important to note that these rules may vary depending on the specific employment laws and regulations in Australia.

It’s always recommended to consult the relevant employment agreements, awards, or Fair Work Australia for accurate and up-to-date information.

When can annual leave be taken?

Employees can take annual leave at any time after it has been accrued, and annual leave will continue to accrue while they are on any form of paid leave. However, employers may need to direct employees to take annual leave in certain circumstances, such as during shut-down periods or when an employee has excessive annual leave.

What payments are required when annual leave is taken?

When annual leave is taken, the payments required can vary based on the applicable awards, enterprise agreements, or registered agreements.

In general, the employee is entitled to be paid at their current base pay rate for all hours of annual leave taken, without extra payments such as overtime rates, penalties, allowances, and bonuses.

However, some agreements may require the payment of annual leave loading in addition to the base pay rate, which is an additional amount, usually a percentage of the employee’s ordinary pay, paid on top of their base pay rate.

How is annual leave paid out at termination?

When employment ends, employers have to pay employees for unused annual leave accumulated during their employment.

The payment must be the same amount the employee would have received if they’d taken the leave during their employment, including any annual leave loading or other payments.

Find out more about what’s included in an employee’s final pay.

Annual Leave FAQs

Q: Can an employer refuse annual leave?

A: The employer must not unreasonably refuse an employee’s request to take annual leave. What constitutes a reasonable refusal depends on a number of things, for example:

  • The period during which the employee wants to take leave;
  • The operational requirements of the business during that leave period;
  • Whether the employee taking leave at that time would be detrimental to the business;
  • Whether the employee gave reasonable notice of wanting to take leave at that time.

Q: Can annual leave be cashed out?

A: Some awards and registered agreements allow annual leave to be cashed out and provide conditions under which the leave can be cashed out. Most awards or agreements require:

  • written agreement between the employer and employee that is signed by both parties;
  • The employee to be paid as much as if they had taken the annual leave;
  • Capping the amount of leave that is able to be cashed out to a maximum of two weeks of annual leave in any 12 month period.

The agreement must also usually specify the amount of leave to be cashed out, the payment to be made for it as well as the date of payment, and must be signed by a parent or guardian in relation to any employees under 18 years of age. A copy of the agreement should be retained as an employee record. This is a complex area and you should seek advice in respect to the relevant provisions contained within any applicable Award.

Q: Can an employee take annual leave during a notice period?

A: Yes, but the notice period may need to be extended to accommodate the leave.

Q: Can an employer ask employees to take annual leave?

A: Yes, an employer can ask employees to take annual leave in certain circumstances such as shut-down periods or excessive annual leave.

However, the employees do not have to agree to take the leave unless the applicable award or registered agreement provides for circumstances in which the employer can direct the employee to take leave. If the employees are award-free, the requirement for them to take leave must be reasonable.

How does Workstem simplify leave management?

Streamline your leave request submission and approval process, reduce administrative burden, and cut costs with Workstem’s leave management feature. Our platform offers default leave types such as annual leave, parental leave, jury duty leave, and long service leave, and allows for additional special leaves as needed.

Stay up-to-date with auto-updates for public holidays and let Workstem handle the calculations for leave balances, entitlements, and leave accrual. Our seamless integration with payroll ensures accurate payment of leave entitlements and proper tax treatment.

Ready to experience the benefits of Workstem?

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