How to calculate annual leave

Published

Oct 17, 2024

Author

In FY 22-23, the Fair Work Ombudsman recovered over half a billion dollars in unpaid wages for Australian workers. A substantial portion of these recoveries resulted from non-compliance with leave entitlements, including annual leave.

Annual leave is a necessary employee benefit, allowing employees paid time off from work. Understanding annual leave entitlements and how to calculate annual leave is imperative.

A misunderstanding or miscalculation can lead to a downturn in employee satisfaction along with hefty penalties for employers. Getting it right is imperative.

In this guide, we define annual leave, detail how to calculate it for both full-time and part-time employees, and cover important considerations like public holidays and leave loading.

The information provided in this article is accurate as of 03/10/2024. For the most up-to-date information, please refer to the Fair Work Act 2009 and the National Employment Standards.

What is annual leave?

Annual leave is a fundamental mandatory employee benefit in Australia, referring to the paid time off that full-time and part-time employees have a right to based on the ordinary hours they work. Based on the Fair Work Act 2009, all employees (except for casual employees) accrue annual leave entitlement throughout the year, which they can use to rest, recharge, and maintain a healthy work-life balance.

While an employee is on leave, they receive an annual leave payment. This payment must reflect their usual wage plus, under several modern awards, a 17.5% annual leave loading or the weekend penalty rates the employee normally gets (plus potential shift loading if the employee is a shift worker).

How much annual leave does an employee get?

According to the National Employment Standards (NES), full-time employees who work 38 hours per week get four weeks (or 20 days) of paid annual leave each year. Part-time employees accrue this annual leave entitlement on a pro-rata basis based on the number of hours they work.

For example, a part-time employee who works 50% of a full-time (2.5 days per week or 19 hours) schedule would accrue two weeks of paid leave per year. As outlined in the Fair Work Act and various modern awards, shift workers may have a right to additional annual leave entitlements because of the nature of their irregular or unsociable working hours.

Should an employee not make use of their full annual leave entitlement within the year (there is no legal requirement for them to do so), their unused annual leave rolls over to the next year.

As an employer, it's essential to maintain accurate records of how much annual leave each employee has. This can help with planning and compliance, while also ensuring you can provide employees with correct information regarding their annual leave entitlements and balances.

How to calculate annual leave for full-time employees

As discussed, full-time employees working 38 ordinary hours per week have a right to four weeks of paid annual leave per year.

The formula for calculating annual leave in hours for a full-time employee is:

4 weeks x ordinary weekly hours = total annual leave in hours

So, if an employee works 38 hours per week:

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

Full-time employees accrue annual leave progressively throughout the year, meaning each week, an employee earns a portion of their annual leave entitlement.

For an employee entitled to 152 hours of annual leave per year:

152 hours / 52 weeks = 2.923 hours of leave accrued per week

Consider an employee who works 38 hours per week. Over 26 weeks, they'll have accrued:

2.923 hours per week x 26 weeks = 76 hours of annual leave

How to calculate annual leave for part-time employees

As mentioned, part-time employees are entitled to annual leave accrued on a prorated basis based on the number of hours they work.

To calculate annual leave entitlements in hours for a part-time employee, you can use the following formula:

(Number of part-time hours per week / 38 hours) x 152 hours = total annual leave in hours

For instance, if a part-time employee works 20 hours per week:

(20 hours / 38 hours) x 152 hours = 80 hours of annual leave per year

Like full-time employees, part-time employees' annual leave accrues progressively based on their ordinary hours worked. So, for an employee entitled to 80 hours of annual leave per year:

80 hours / 52 weeks = 1.538 hours of leave accrued per week

Consider a part-time employee who works 20 hours per week. Over 30 weeks, they'll have accrued:

1.538 hours per week x 30 weeks = 46.1 hours of annual leave

Let Rippling handle annual leave calculations automatically, so you don't have to.

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Special considerations for annual leave

There are a few important factors to keep in mind when managing annual leave to ensure compliance and employee satisfaction:

Public holidays during annual leave: When a public holiday falls during an employee’s annual leave, the holiday doesn’t reduce their leave balance. Instead, the employee receives the public holiday as a paid day off, separate from their annual leave, per the NES.
Excessive annual leave: If an employee has accrued an excessive annual leave balance (typically over 8 weeks), you can direct them to take leave, though it's important to do so with the provision of reasonable notice and consideration of the employee’s preferences.
Cashing out annual leave: Some employees can request to cash out a portion of their accrued leave (up to 2 weeks per year), but they must agree to it in writing with you and maintain a minimum balance of leave.

Frequently asked questions

Does annual leave accrue during parental leave?

Employees don't accrue annual leave while they take unpaid parental leave. However, they may accrue annual leave during periods of employer-funded paid parental leave, for example.

Does annual leave accrue during sick and carer's leave?

Yes, annual leave continues to accrue when an employee takes paid leave, such as paid sick and carer’s leave. These periods contribute to the employee’s continuous service.

What happens to annual leave balances when an employee resigns?

When an employee's employment ends, there's a requirement for you to pay out their unused annual leave as part of their final payment, based on their ordinary pay rate at the time of termination.

Can an employer refuse annual leave?

Yes, as an employer, you can refuse annual leave on business grounds. Though, it's important to note that your refusal must be reasonable, and you should work with the employee to ensure they can take the leave at a better suited time.

How much extra annual leave do shift workers get?

Under some awards or enterprise agreements, shift workers have a right to an extra week of annual leave, totalling five weeks in a year.

When is annual leave paid?

While an employee is on annual leave, you generally pay them on their usual payday, unless you’ve agreed on a different arrangement.

Track and manage annual leave with Rippling

Managing annual leave accurately is a significant part of compliance and workforce planning. Rippling simplifies this process by offering a comprehensive, all-in-one platform that allows you to easily track, manage, and calculate annual leave entitlements. Key features include:

Automated leave tracking: Rippling automatically tracks leave accruals based on an employee’s work hours, contract type, and other relevant factors, ensuring precise calculations of leave balances.
Employee self-service: Employees can request leave through Rippling’s platform, view their current leave balances, and track their accruals in real-time. This ensures transparency and helps employees plan their time off effectively.
Payroll integration: Rippling automatically syncs approved leave with payroll, ensuring you can process annual leave payments correctly and on time, whether on the employee’s regular payday or through a special arrangement.
End-of-employment leave payouts: When an employee's employment ends, Rippling calculates and processes any outstanding unused annual leave, ensuring that employees receive their entitlements without delay.

Take the stress out of annual leave management, payroll, and compliance.