Annual leave

What is Annual Leave?

Annual leave is a type of paid time off granted to employees so they can rest, recharge, or attend to personal matters. In Australia, under the National Employment Standards (NES), full-time and part-time employees are entitled to four weeks of paid annual leave per year, based on their ordinary hours of work. This entitlement builds progressively throughout the year and accumulates year to year if unused.

Why Annual Leave Matters for Employers

Providing regular annual leave isn't just a legal requirement — it's also vital for long-term employee well-being, retention, and productivity. Encouraging employees to take leave helps prevent burnout, improve morale, and maintain a healthy work culture.

Employers must keep accurate records of leave balances and usage to remain compliant with Fair Work obligations. Failure to do so can result in underpayment disputes, audits, or even legal action.

How Annual Leave Is Accrued

Annual leave begins accruing from the first day of employment. It accrues:

• On a pro-rata basis for part-time employees.
• During paid leave periods (like public holidays or sick leave).
• Not during unpaid leave (e.g., unpaid parental leave).

For award and agreement-free employees, the accrual is typically calculated as 2.923 hours for every 38-hour week worked.

Using Annual Leave

Employees must request annual leave, and employers must not unreasonably refuse a request. However, employers can set rules around when leave is taken, especially in seasonal industries or peak periods.

Common leave request rules may include:

• A minimum notice period.
• Limits on consecutive leave days.
• Blocking out peak business times.

Employers can also direct an employee to take annual leave if:

• The employee has accumulated excessive leave (usually over 8 weeks).
• It is reasonable and follows the correct notice procedure.

Annual Leave Loading

Some modern awards and enterprise agreements include annual leave loading, usually 17.5%, to compensate for lost overtime or penalty rates during leave.

Check the applicable modern award via Fair Work’s Award Finder to confirm your obligations.

How Microkeeper Helps

Microkeeper’s HR and payroll software helps automate annual leave management:

• Automatically calculates accruals based on hours worked
• Syncs leave balances across timesheets and payroll
• Lets employees request leave via their console
• Sends alerts when balances are low or when leave is pending approval

This streamlines compliance while reducing admin and payroll errors.

Explore our Leave Management features.

Annual Leave FAQs

1. Can annual leave be cashed out?

‍Yes, but only under limited circumstances. The NES allows cashing out of annual leave if:

• A modern award or enterprise agreement allows it.
• There is a written agreement.
• The employee retains at least 4 weeks of leave.

2. Does unused annual leave expire?

‍No. Unused annual leave continues to accumulate year-to-year. It must be paid out on termination.

3. Can annual leave be forced over Christmas?

‍Employers can direct leave if their business shuts down over Christmas/New Year, provided this is covered in an agreement or award.

Final Thoughts

Annual leave is a core entitlement, but managing it well also drives retention, reduces burnout, and improves your company culture. By leveraging tools like Microkeeper, you can stay compliant while supporting a healthier, more productive team.

_{Disclaimer: This glossary entry is for general informational purposes only and does notconstitute legal or financial advice. For official guidance, always refer to the ATO or consult a registered tax agent.}