Most Australian employees don't know exactly how much accrued annual leave they're entitled to at any point — let alone how a payout is calculated when they resign, are made redundant, or are terminated. Getting this wrong can cost thousands of dollars. This guide explains exactly how annual leave accrual and payout work under the Fair Work Act.
Try it yourself: Use our free Annual Leave Payout Calculator to calculate exactly how much leave you've accrued and what your payout should be.
Annual Leave Entitlements Under the Fair Work Act
Under the National Employment Standards (NES), all full-time employees in Australia are entitled to 4 weeks (20 days) of paid annual leave per year. Part-time employees receive a pro-rata entitlement based on their ordinary hours of work.
Some employees receive additional leave under their Modern Award or Enterprise Agreement. Shift workers, for example, are often entitled to 5 weeks (25 days) per year.
| Employment Type | Annual Leave Entitlement |
|---|---|
| Full-time (Mon–Fri, 38 hours) | 20 days / 152 hours per year |
| Part-time (e.g., 4 days/week) | 16 days / 121.6 hours per year |
| Shift workers (as defined) | 25 days / 190 hours per year |
| Casual employees | No annual leave entitlement |
How Annual Leave Accrues
Annual leave accrues progressively throughout the year — not as a lump sum granted on the anniversary of employment. The accrual formula is:
Weekly accrual = (Annual entitlement in hours) ÷ 52
For standard full-time: 152 hours ÷ 52 = 2.923 hours per week
Example: You've worked for 7 months (approximately 30.4 weeks) as a full-time employee.
Accrued leave = 30.4 × 2.923 = 88.8 hours ≈ 11.7 days
Annual leave continues to accrue during paid leave (including annual leave itself), paid personal/carer's leave, and most forms of paid leave. It does not accrue during unpaid leave, unless your Enterprise Agreement specifies otherwise.
How Annual Leave Payout Is Calculated on Termination
When employment ends — whether by resignation, redundancy, dismissal, or any other reason — your employer must pay out all accrued but unused annual leave. This is a legal requirement under the Fair Work Act and cannot be waived.
Leave payout = Accrued leave hours × Hourly rate of pay
Hourly rate = Annual salary ÷ 52 ÷ 38 (for full-time employees)
Or as specified in your contract for other arrangements
Example: You're resigning after 14 months of full-time employment at a salary of $75,000 per year. You've taken 10 days of leave during this period.
Total entitlement accrued: 14 months × (20 days ÷ 12) = 23.33 days
Leave taken: 10 days
Remaining leave: 23.33 − 10 = 13.33 days
Hourly rate: $75,000 ÷ 52 ÷ 38 = $37.95/hour
Hours of leave: 13.33 days × 7.6 hours = 101.3 hours
Leave payout: 101.3 × $37.95 = $3,844
The Ordinary Time Earnings Rule
Annual leave must be paid at the employee's ordinary time earnings — not their base rate alone. This is a critical distinction that many employers (and employees) get wrong.
Ordinary time earnings typically include:
- Base salary or hourly rate
- Shift loadings or allowances that are "integral" to the employee's ordinary pay
- Some bonuses that are regular and expected
Generally excluded from the ordinary time earnings calculation:
- Overtime rates
- Discretionary bonuses
- Expense reimbursements
- Penalty rates for working specific days (though some awards include these)
Tax on Annual Leave Payouts
Annual leave paid out on termination is taxed differently from normal leave taken during employment:
Leave Paid Out in Normal Circumstances (Resignation, Contract End)
Taxed at your marginal tax rate — the same as your regular salary. It's simply added to your final pay and taxed accordingly.
Leave Paid Out Due to Genuine Redundancy or Early Retirement Scheme
Annual leave paid as part of a genuine redundancy package attracts a tax offset of 32% of the leave payout amount, effectively capping the tax rate at a maximum of 32% regardless of your marginal rate. This is a significant benefit for high earners facing redundancy.
Annual Leave Loading
Some Modern Awards and Enterprise Agreements include annual leave loading — typically 17.5% added to the ordinary pay rate during annual leave. If your award includes this, it must also be included in any annual leave payout on termination.
Check your Modern Award (via the Fair Work website) or Enterprise Agreement to confirm whether you're entitled to leave loading. If your employment contract says you're award-free, you may still be covered by a base award — worth confirming with Fair Work.
Frequently Asked Questions
Can my employer refuse to pay out annual leave?
No. Payment of accrued annual leave on termination is a legal requirement under the National Employment Standards. It applies to all national system employees regardless of the reason for termination. An employer who refuses to pay can be reported to the Fair Work Ombudsman.
What happens to annual leave during parental leave?
Annual leave continues to accrue during paid parental leave (including employer-funded leave). During unpaid parental leave, leave accrual is suspended unless your Enterprise Agreement provides otherwise.
Can I be asked to take annual leave during low business periods?
Yes. Employers can direct employees to take annual leave during shutdown periods (like Christmas) with reasonable notice, provided this is allowed under the relevant Modern Award or the direction is "reasonable" under the Fair Work Act. They can also direct employees to take leave if they have an excessive leave balance (typically 8+ weeks accrued).
Does annual leave accrue on overtime?
Generally no. Annual leave accrues based on ordinary hours of work, not overtime. However, if your ordinary hours under your contract include additional hours beyond 38/week, those hours may count. Check your contract and applicable award.
What if I'm on a casual contract — do I get annual leave?
Casual employees do not accrue annual leave. Instead, they receive a 25% casual loading on their hourly rate (where applicable) as compensation for not receiving annual leave, personal leave, or other entitlements. However, if you've worked as a casual on a regular and systematic basis, you may have grounds to be reclassified as a part-time or full-time employee — contact Fair Work for advice.
Calculate your annual leave payout
Use our Annual Leave Payout Calculator to calculate exactly what you're owed based on your salary, employment duration, and leave taken.
Also explore: Redundancy Payout Calculator · Overtime Pay Calculator