Table of content
- Understanding Leave Entitlements: The NES Minimums
- Annual Leave Pay Calculation: Base Rate & Leave Loading
- Personal/Carer’s Leave: How to Calculate Sick Leave Pay
- Casual Employee Considerations
- Common Mistakes to Avoid in Leave Calculations
- Key Takeaways
- How Does Workstem Help?
- FAQ: Annual Leave and Sick Leave in Australia
- Leave Calculators
- Leave Entitlements Guide
- HR Insights & Resources
Accurately calculating leave pay is a fundamental responsibility for every Australian employer. Getting it wrong can lead to employee disputes, underpayment claims, and significant penalties for non-compliance with the Fair Work Act 2009.
This definitive guide will walk you through how to correctly calculate annual leave pay and personal/carer’s leave (often called sick leave) for your employees, ensuring you meet your obligations under the National Employment Standards (NES).
Understanding Leave Entitlements: The NES Minimums
The NES provides the baseline entitlements for all eligible employees in Australia.
- Full-time employees are entitled to 4 weeks of paid annual leave and 10 days of paid personal/carer’s leave per year.
- Part-time employees receive the same entitlements on a pro-rata basis, according to their hours of work.
- Casual employees do not receive paid annual or sick leave. Instead, they are paid a casual loading (usually 25%) on their base wage to compensate for the lack of paid leave benefits and permanency.
It’s crucial to remember that many Modern Awards and Enterprise Agreements can provide entitlements that are more beneficial than the NES minimums.
Annual Leave Pay Calculation: Base Rate & Leave Loading
When an employee takes annual leave, they must be paid at their full base rate for the ordinary hours they would have worked.
The calculation is generally straightforward:
Annual Leave Pay = Hours on Leave × Base Rate of Pay
However, a critical factor is leave loading. Some Modern Awards or registered agreements require employers to pay an additional loading (typically 17.5%) on annual leave pay. This is not a requirement under the NES alone but is very common in awards.
Worked Example:
Sarah, a full-time retail employee, earns a base rate of $25.00 per hour. Her Award stipulates a 17.5% leave loading. She takes one 7.6-hour day of annual leave.
- Base Pay for the Day: 7.6 hours × $25.00 = $190.00
- Leave Loading: $190.00 × 17.5% = $33.25
- Total Annual Leave Pay: $190.00 + $33.25 = $223.25
Workstem Tip: Our automated payroll system identifies the correct Award, applies leave loading rules, and calculates the exact payment, eliminating manual errors and ensuring award compliance.
Personal/Carer’s Leave: How to Calculate Sick Leave Pay
Personal/carer’s leave is an umbrella term that covers paid leave when an employee is:
- Sick or injured (sick leave)
- Caring for an immediate family or household member who is sick or injured (carer’s leave)
The payment for paid personal/carer’s leave is the same as for annual leave.
Sick Leave Pay = Hours on Leave × Base Rate of Pay
Importantly, leave loading does not apply to personal/carer’s leave. An employee on sick leave is simply paid their base rate for the ordinary hours they are absent.
Worked Example:
David, a part-time admin worker, works 15 hours per week at $30.00 per hour. He takes one 3-hour sick leave absence.
Sick Leave Pay: 3 hours × $30.00 = $90.00
Employees accrue personal/carer’s leave throughout the year (approximately 1.46 hours for every 38 hours worked), and it accumulates from year to year if not used.
Casual Employee Considerations
As mentioned, casual employees are not entitled to paid annual or sick leave. Their hourly rate includes a casual loading (e.g., 25%) to make up for this.
If a casual employee is sick or wants a holiday, they simply do not get paid for the hours they don’t work. There is no calculation required for paid leave.
Common Mistakes to Avoid in Leave Calculations
- Forgetting Leave Loading: Overlooking award-mandated leave loading is a common and costly error.
- Using the Wrong Base Rate: The base rate must include all allowances and loadings that are part of the employee’s ordinary earnings, excluding overtime and penalty rates.
- Miscalculating Pro-rata Entitlements: Incorrectly calculating leave for part-time employees or employees who start or finish part-way through the year.
- Not Tracking Accruals: Manually tracking leave accruals is prone to error, leading to over or underpayments.
- Confusing Personal Leave Types: Failing to understand that an employee’s paid sick leave and carer’s leave come from the same personal/carer’s leave entitlement.
Key Takeaways
- Know the NES: Understand the minimum entitlements for full-time, part-time, and casual employees.
- Check the Award: Always refer to the relevant Modern Award or agreement for specific rules on leave loading and other conditions.
- Calculate Correctly: Annual leave may require a 17.5% loading; sick leave is always paid at the base rate only.
- Automate for Accuracy: Manual calculations are time-consuming and risky.
How Does Workstem Help?
Simplify your payroll process and ensure accurate pay rates with Workstem’s automated payroll system. Our pre-built modern award interpretation software covers 122+ awards and 34 EBAs, and keeps you up-to-date with penalty rates and other award entitlements.
Choose between our Standard and Advanced plans, and enjoy a range of benefits such as Fair Work compliance, an employee self-service App, and custom rule set. We have integrated our system with Microsoft and Netsuite as well to bring you a complete HR SaaS solution for your business.
Choose from our Standard or Advanced plan to suit your business needs, and stay Fair Work compliant with confidence.
FAQ: Annual Leave and Sick Leave in Australia
Q1: Can an employer refuse a request for annual leave?
A1：Yes, but only if the refusal is reasonable. For example, an employer can refuse leave due to operational requirements, such as peak business periods where other staff are already on leave. However, they must respond to the request and cannot unreasonably refuse it.
Q2: Do employees continue to accrue annual leave while they are on leave?
A2：Yes. Employees continue to accrue annual leave while they are taking paid leave, such as annual leave or personal/carer’s leave.
Q3: What is the difference between personal leave and carer’s leave?
A3：There is no difference in pay. “Personal/carer’s leave” is a single entitlement under the NES. It is used for two purposes: when the employee is personally sick or injured (sick leave), or when they need to care for a sick family or household member (carer’s leave). Both types of leave are drawn from the same paid leave balance.
Q4: What happens to unused annual leave when an employee resigns or is terminated?
A4：Upon termination of employment, an employee must be paid out for any untaken annual leave they have accrued. This payment includes their base rate of pay for the hours of leave owed, plus any applicable leave loading if it would have been payable had they taken the leave.
Q5: Are employees paid public holiday rates when they are on annual leave?
A5：No. If a public holiday falls during a period when an employee is on annual leave, the day is treated as a public holiday, not an annual leave day. The employee is paid their base pay rate for the public holiday (if they would ordinarily have worked that day), and the day is not deducted from their annual leave balance.
Q6: Can I require an employee to provide a medical certificate for a single day of sick leave?
A6：Yes, an employer can request evidence for any absence on personal/carer’s leave, even for a single day. A medical certificate is the most common form of evidence, but a statutory declaration may also be acceptable.
Q7: How is leave calculated for shift workers?
A7：Shift workers under the NES are entitled to 5 weeks of annual leave instead of 4. The base rate of pay for their leave is calculated based on their ordinary hours, which can be complex for rotating rosters. Modern Awards have specific rules for calculating leave pay for shift workers, which often involves using the average of their hours and rates over a prior period.
Book a free demo with our payroll experts and experience how Workstem can streamline your payroll and workforce operations.
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