When it comes to paying your employee’s annual leave entitlement, you want to make sure that you get it right. The National Employment Standards contain very proscriptive rules regarding employees’ leave. For starters, all your employees must receive four weeks of paid annual leave each year. However, this entitlement does not apply to casual employees. Additionally, your employee’s annual leave accrues on a pro-rata basis depending on their ordinary working hours. Pro-rata means ‘in proportion’ – that is, you must pay your employees annual leave based on the amount they work. To help you better understand your employee’s annual leave entitlement, this article outlines:
- your obligations regarding annual leave;
- how to calculate paid annual leave; and
- how your employees may take annual leave.
Your Obligations Under the National Employment Standards
One of the first sources you should consult when giving your employees annual leave are the National Employment Standards (NES). The NES set out the minimum standards for all workers covered by the national workplace relations system in Australia. Although a modern award or enterprise agreement that covers your employees can provide additional leave benefits, these legal documents cannot undermine the standards set out in the NES.
Under the NES, all employees except casuals are entitled to four weeks of paid leave. Additionally, your shift workers may be entitled to a minimum of five weeks of paid annual leave if they meet certain requirements.
Your employee’s annual leave accrues on a pro-rata basis, depending on their ordinary working hours. So, if your full-time employee works a 38-hour week, they will accrue the equivalent of four weeks of paid leave per year (38 hours x 4 weeks = 152 hours of annual leave). Alternatively, if your part-time employee works a 20-hour week, they will accrue the equivalent of four weeks of paid leave (20 hours x 4 weeks = 80 hours of annual leave).
To help you calculate your employee’s annual leave, you can use the Fair Work Ombudsman’s online calculator.
Calculating Your Employee’s Pro-Rata Annual Leave
Annual leave accumulates from your employees’ first day of employment. However, it is important to know when annual leave does and does not accrue.
Annual leave accrues when your employee is on:
- paid leave, including previous annual leave, sick leave, and carer’s leave;
- community service leave;
- long service leave; or
- a probationary period at work.
Annual leave does not accrue when your employee:
- is on unpaid leave, including sick leave, carer’s leave, and parental leave; or
- they have cashed out a period of annual leave.
If there are no additional entitlements other than what the NES prescribes, your full-time employees will accrue 2.923 hours of annual leave for each week of work they complete. This is on the basis that they work the standard 38-hour week.
Consequently, calculating your full-time employee’s annual leave would involve you:
- multiplying the number of weeks they worked for you by 2.923;
- multiplying this amount by your employee’s hourly rate of pay; and
- deducting any annual leave that your employee has previously taken for this period.
In any event, you can use the Fair Work Ombudsman’s online calculator to help calculate your employee’s annual leave.
Continue reading this article below the formHow Can an Employee Take Pro-Rata Leave
Employees are entitled to take annual leave once it has accumulated. You and your employees may come to an agreeable period for when an employee may take their accrued pro-rata annual leave. However, you are not permitted to unreasonably refuse an employee’s request to take annual leave.
Industrial instruments, such as modern awards and enterprise agreements, may provide for additional rules involving the taking of annual leave. You and your employees can agree on when and how annual leave may be taken. This includes but is not limited to allowing employees to take annual leave:
- in advance; or
- within a fixed period of time after annual leave is accumulated.
When an employee is on a period of annual leave, they will not be considered to be on annual leave in some circumstances, including:
- if their period of leave falls on a day or on part of a day that is a public holiday; and
- they are on another period of leave, for example, if they are required to take sick leave due to injury or illness during annual leave.
If this occurs during an employee’s period of annual leave then the relevant periods will not be deducted from their accrued annual leave balance.
How Is Pro-Rata Annual Leave Paid?
Whilst on annual leave, you are required to pay the employee the employee’s base pay rate for the employee’s ordinary hours of work in the period. Modern awards may provide for an additional payment during a period of paid annual leave. In addition, upon termination, you must pay your employees their accrued but untaken annual leave.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
Crucially, all your employees except your casual employees are entitled to four weeks of paid annual leave each year. If you employ shift workers, under certain circumstances, they may be entitled to a minimum of five weeks of paid annual leave. Nevertheless, you must comply with your obligations under the NES.
If you need assistance understanding pro-rata annual leave, contact our experienced employment lawyers 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.
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