Can I Offer My Employees Pro-Rata Annual Leave?

When it comes to paying your employee’s annual leave entitlement, you want to make sure that you get it right. Under the National Employment Standards, all employees except your casual employees are entitled to a minimum of four weeks of paid annual leave each year. 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; and
• how to calculate paid annual leave.

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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.

[content box] 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; and
• a probationary period at work.

Annual leave does not accrue when your employee is on:

• unpaid leave, including sick leave, carer’s leave, parental leave, and domestic violence leave; and
• the period of annual leave that your employee has already cashed out.

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:

1. multiplying the number of weeks they worked for you by 2.923;
2. multiplying this amount by your employee’s hourly rate of pay; and 
3. 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. 

Consider the Relevant Award

Since most employees in Australia are covered by a modern award, you should consult the award that is relevant to your industry. As mentioned above, a modern award can provide your employees with additional leave entitlements to what the NES prescribes. For example, the General Retail Industry Award entitles employees to an additional payment of leave loading payable on the leave they have accrued.

[content box] Leave loading is an extra payment you make on top of your employee’s paid annual leave. Depending on the relevant award, leave loading is usually calculated at 17.5% of an employee’s usual wages. In this sense, your employee could potentially receive:

• four weeks paid annual leave; and
• leave loading for the same period.

In any event, you must clarify your employee’s leave entitlements by considering their relevant award, enterprise agreement, and sometimes their employment contract. 

Key Takeaways 

Your employee’s annual leave accrues on a pro-rata basis. Under the National Employment Standards, all of your employees except your casual are entitled to a minimum of four weeks of paid annual leave each year. So, a full-time employee who works a 38 hour week will accrue the equivalent of four weeks of paid leave per year (38 hours x 4 weeks = 152 hours of annual leave). If you need help calculating your employees’ annual leave, 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.

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