Annual Leave in Australia: Entitlements, Accrual and Payout
Annual leave — commonly called holiday pay — is one of the most valued workplace entitlements in Australia. It is one of the 11 National Employment Standards (NES) under the Fair Work Act 2009, meaning all eligible employees receive it regardless of what their contract says.
How Much Annual Leave Do You Get?
The minimum annual leave entitlement depends on your employment type:
- Full-time employees — 4 weeks of paid annual leave per year (based on ordinary hours)
- Part-time employees — a proportionate amount based on their ordinary hours (e.g., a part-time employee working 3 days per week gets 3/5 of 4 weeks = 2.4 weeks)
- Shift workers — certain employees who regularly work on Sundays and public holidays may be entitled to 5 weeks of annual leave per year; check your Modern Award for details
- Casual employees — casuals do not accrue annual leave. Instead, they receive a 25% casual loading on their hourly rate to compensate for the absence of paid leave entitlements
Your Modern Award or Enterprise Agreement may provide more than the NES minimum, but never less.
How Annual Leave Accrues
Annual leave accrues continuously and progressively throughout the year — it does not arrive as a lump sum on your anniversary date. From day one of employment, you are accruing leave.
Key points:
- Leave accrues based on ordinary hours worked
- Unused annual leave carries over from year to year — there is no "use it or lose it" rule under the NES
- Annual leave continues to accrue while you are on paid leave (including annual leave itself and personal/carer's leave)
- Annual leave does not accrue during unpaid leave (e.g., unpaid parental leave), unless your award or agreement says otherwise
Taking Annual Leave
Both you and your employer have rights and obligations when it comes to taking annual leave:
- Employee's right — you can take annual leave at a time agreed with your employer. You should give reasonable notice (the required notice period is usually set out in your award or agreement).
- Employer's right — an employer can require you to take annual leave in certain circumstances: during a shutdown period (e.g., Christmas/New Year closure), or if you have accumulated an excessive amount of leave. The employer must give reasonable notice to direct leave-taking.
- Leave in advance — by mutual agreement, you and your employer can arrange for you to take leave before it has fully accrued, but this is not an automatic right.
If your employer refuses a reasonable leave request without good reason, you may have grounds for a complaint to the Fair Work Ombudsman.
Leave Loading
Many Modern Awards and Enterprise Agreements include an annual leave loading of 17.5% on top of your ordinary rate of pay when you take annual leave. This loading was originally introduced to compensate employees for the loss of overtime and penalty rates during leave periods.
Not all employees receive leave loading — it depends on your award or agreement. Check your Modern Award at fairwork.gov.au to confirm whether loading applies to your role.
If your award includes leave loading, your employer must pay it whenever you take annual leave. They cannot simply include it in your base rate and call it done, unless there is a proper written agreement to that effect.
Cashing Out Annual Leave
Under some Modern Awards and Enterprise Agreements, it is possible to "cash out" a portion of your annual leave — that is, receive payment for leave instead of actually taking time off. The rules are strict:
- You must have at least 4 weeks of annual leave remaining after the cash-out
- The cash-out must be by genuine written agreement — your employer cannot pressure you into cashing out
- You must be paid the full amount you would have received had you taken the leave (including any applicable leave loading)
- A new written agreement is required for each cash-out
Cashing out is not available under all awards — check yours before assuming it is an option.
Annual Leave Payout on Termination
When your employment ends — whether by resignation, redundancy, retirement, or dismissal — your employer must pay out all accrued and unused annual leave at your ordinary rate of pay (plus leave loading if it applies under your award). This applies regardless of the reason for termination and regardless of whether you resign or are let go.
Annual leave payout on termination is taxed differently from regular wages. The ATO applies specific rules, so check with a tax adviser or use the ATO's tax withheld calculator if you receive a large payout.
If your employer refuses to pay out your accrued leave upon termination, you can lodge a complaint with the Fair Work Ombudsman at fairwork.gov.au or call 13 13 94.