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Under the National Employment Standards, all employees other than casual employees have the right to a minimum of four weeks of paid leave from work each year. Your employee’s annual leave begins to accumulate from the day they start work. It will accumulate based on the number of ordinary hours they work.

To help you better understand your obligations concerning paying your employees annual leave, this article outlines some basic considerations you should make.

Annual Leave Under The National Employment Standards

The National Employment Standards (NES) set out the minimum employment standards for all workers covered by the national workplace relations system in Australia. The NES covers workplace conditions from maximum working hours to annual leave requirements. As mentioned above, all employees other than casuals have the right to four weeks of paid leave under the NES.

However, this could differ depending on whether a modern award or enterprise agreement covers your employee. This is because whilst the NES sets the minimum employment standards, awards and registered agreements can provide additional leave for some employees. For this reason, you must clarify your employee’s leave entitlements by considering their relevant award, registered agreement and/or employment contract.

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Calculating Annual Leave

As mentioned above, annual leave accumulates from the first day of employment. Your full-time employees are entitled to four weeks paid annual leave per year based on their ordinary hours of work. However, your part-time employees are entitled to pro-rata paid leave based on the number of hours they work. 

Your employee’s annual leave will continue to accumulate even when your employee is on:

  • a probationary period at work;  
  • paid leave, including previous annual leave, paid sick leave, and paid carer’s leave;
  • community service leave; and
  • long service leave.

However, annual leave does not accumulate if your employee is on unpaid leave. This includes unpaid sick and carer’s leave, parental leave, and domestic violence leave. It will also not accumulate for any period of annual leave that your employee has cashed out.

Above all, you should note that any unused annual leave will roll over from year to year.

On the basis that there are no additional entitlements beyond what the NES prescribes, your full-time employee accrues 2.923 hours of annual leave for each completed week of work. This figure is based on the standard 38 hour week and generally remains the same even if your employee works more than 38 hours in a given week. In this sense, to calculate your full-time employee’s total hours of annual leave, you must:

  1. multiply the number of weeks they have been employed by your business by 2.923;
  2. multiply this amount by your employee’s hourly rate of pay; and 
  3. deduct any annual leave your employee has previously taken. 

To help you calculate your employee’s annual leave hours, you can use the Fair Work Ombudsman’s online calculator or get in touch with one of our experienced employment lawyers.

Directing Employees To Take Annual Leave

Under some modern awards and registered agreements, you may be able to direct your employees to take their annual leave. The relevant award or registered agreement should also specify in what circumstances you can direct an employee to take leave. This can include circumstances where your employee has excessive annual leave, or your business is undergoing its annual shut down period.

Excessive annual leave will be defined by the relevant award or registered agreement. When an employee reaches the specified amount of leave, you may be able to direct them to take it.

Many awards and registered agreements may require you to take additional steps before making a direction. For example, you might be obliged to give written notice directing your employee to take leave within a certain timeframe. In any event, you should clarify your obligations under the award or registered agreement that covers your employees before making a direction.

Cashing Out Annual Leave

In some circumstances, an award or enterprise agreement might enable your employees to request their annual leave to be paid in cash instead of taken as time off. This can arise if you:

  • have a written and signed agreement with your employee that enables them to cash out their annual leave;
  • pay your employee the same amount they were entitled to had they taken their annual leave; and
  • will not foster a situation where the employee has less than four weeks of annual leave accrued.

Key Takeaways

Your employee’s annual leave begins to accumulate from the day they start work and continues to accumulate for the number of weeks you have employed them. 

If you need help calculating annual leave for your employees, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is annual leave?

Annual leave is a period of time when you pay employees whilst they have time off from work. Under the National Employment Standards, all employees other than casuals are entitled to a minimum of four weeks of paid leave from work each year. 

How is annual leave calculated for full-time employees?

Full-time employees generally accrue 2.923 hours of annual leave for each completed week of work. You can calculate your employee’s annual leave hours by using the Fair Work Ombudsman’s online calculator

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