Annual Leave

Annual leave allows employees to have some much needed R&R and can be accessed at any time by agreement between the employee and employer. In this article, we’ll go over everything you need to know about annual leave.

How does annual leave accrue? 

A full-time employee will accrue 4 weeks of paid annual leave per year. A part time employee will accrue annual leave on a pro rata basis. There is no ‘cap’ on how much leave an employee can accrue each year. Unused leave from one year will carry over to the next. All employee’s, except casual employee’s, accrue annual leave.

A common myth surrounding annual leave is that an employee must be with you for a certain period of time in order to access it. This isn’t true! Annual leave begins accruing from an employee’s first day of work and will continue to accrue for each ordinary hour of work an employee performs. Whilst an employee won’t accrue annual leave when working overtime, they’ll accrue annual leave when they’re on any other form of paid leave. Roughly, a full-time employee will accrue 2.9 hours of annual leave per week.

Managing leave accrual

When accruing annual leave for an employee, this is best thought of as a ‘pool’ of hours. The value of this pool is only determined at the point in time the employee accesses the leave. As leave accrues in hours, it’s often in an employer’s best interest to ensure leave is managed properly. It’s common to see situations where an employee commences with you as a junior and is promoted throughout the organisation. As an employee earns more and more money, the value of the leave pool with dramatically increase. 20 hours of leave at minimum rates of pay is a lot cheaper for an employer to account for than 20 hours at a CEO salary!

Another common trap employer’s fall into is the request for annual leave from an employee who doesn’t have enough leave accrued to cover their absence. There are no hard and fast rules here. An employer can let an employee ‘dip’ into arrears and pay them for leave they haven’t yet accrued. In these instances, while it may be tempting to let an employee dip into arrears to keep them onside, mechanisms to protect the business should be considered. What will you do in the event the employee leaves your employment and you have no agreement with the employee as to when or even if, the value of the leave taken in advance has to be repaid? Alternatively, there’s no obligation to let an employee access leave without pay if they’ve requested to access more leave than they have accrued.

Here’s how to pay annual leave

Annual leave must be paid at an employee’s base rate of pay at the time the leave is accessed.  Large leave accruals are not only costly for employer’s but represent a missed opportunity as regular leave use is a great way to gauge staff performance. Whilst limited circumstances do exist where employees can be directed onto leave, creating a culture where employee’s access leave can assist with staff retention.

Annual leave is paid at an employee’s base rate of pay. However, depending on an employee’s contract or applicable Modern Award or Enterprise Agreement, they may be entitled to receive an annual leave loading, which will be added to the employee’s rate of pay when they access leave.

If an employee accesses annual leave during a pay period, the amount of leave accessed and any applicable loading, must be shown on an employee’s payslip.

What happens when employment ends? 

When employment ends an employee must be paid out the value of the annual leave equivalent to what they would have received had they remained employed. This will include any annual leave loading that may apply.

Have questions about annual leave? 

Understanding annual leave is critical for employers to ensure compliance with workplace regulations. With Citation HR you can ensure you’re remaining compliant through our industry leading software and around–the–clock support. Contact us now for a no obligation chat about your workplace compliance.