Annual leave entitlement in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Annual leave in Australia is a legal entitlement under the National Employment Standards (NES), which apply to all national system employees. Most full-time and part-time employees accrue four weeks of paid annual leave per year of service.
Who gets annual leave
The NES covers the vast majority of employees in Australia — those employed under the national workplace relations system, which includes most private sector workers. Full-time employees accrue four weeks of paid annual leave per year. Part-time employees accrue leave on a pro-rata basis, proportional to their ordinary hours.
Casual employees do not accrue annual leave. Instead, they receive a casual loading in their pay rate, which is intended to compensate for the absence of leave entitlements.
Some awards and enterprise agreements provide more generous entitlements than the NES minimum. Where that applies, the more generous condition always wins.
How annual leave accrues
Leave accrues progressively throughout the year, not in a lump sum on an anniversary date. An employee who has worked half a year will have accrued approximately two weeks of leave. Accrual is based on ordinary hours worked, not overtime.
Shift workers covered by certain awards may be entitled to five weeks of annual leave per year rather than four. Whether a specific employee qualifies as a shift worker for this purpose depends on their award or agreement, so it is worth checking the relevant instrument.
Annual leave continues to accrue during periods of paid leave, including when an employee is on annual leave itself, taking personal or carer's leave, or on paid parental leave. It generally does not accrue during unpaid leave unless an award or agreement says otherwise.
Taking annual leave
Employees can request annual leave and, under the NES, employers must not unreasonably refuse a reasonable request. What counts as reasonable depends on context — operational requirements, notice given, and team coverage all play a role. A flat refusal without genuine operational justification is unlikely to hold up.
Employers can direct employees to take annual leave in some circumstances, but only if the direction is reasonable. Common situations include a workplace shutdown over Christmas, or where an employee has accumulated an unusually high leave balance. Many awards and agreements include specific rules about excessive leave balances and when a direction to take leave is permissible.
Leave must be paid at the employee's ordinary rate of pay, or their base rate if they have a regular pattern of loadings or overtime — whichever is higher under their award or agreement. Always check the relevant modern award, as the calculation method can vary.
Annual leave loading
Many awards include an annual leave loading of 17.5% on top of the ordinary rate, payable when the employee takes annual leave. Not all awards include this, and some enterprise agreements have different arrangements. If an award or agreement provides for loading, it must be paid; if it does not, there is no general legal obligation to pay it.
What happens to unused leave
Unused annual leave accumulates. There is no statutory cap or "use it or lose it" rule at the federal level. This means an employee can build up a significant leave balance over time, which represents a financial liability on the employer's books.
From a payroll perspective, accrued annual leave is recorded as a liability. When an employee's employment ends — for any reason, including resignation, redundancy or dismissal — any untaken annual leave must be paid out at the ordinary rate (or the rate required by the relevant award). This payout is subject to PAYG withholding in the same way as ordinary wages.
Annual leave and payroll obligations
Every pay event must be reported to the ATO through Single Touch Payroll (STP). That includes payments made when annual leave is taken or paid out on termination. Leave balances should be tracked accurately in your payroll system so the liability is always visible.
At the end of the financial year, STP finalisation must be completed by 14 July. This signals to the ATO and the employee that their income statement is ready for tax return purposes. If an employee takes leave across the financial year boundary, the payment falls in the year it was actually paid.
For businesses managing employees across different states or industries, checking the applicable modern award is essential. Awards set the floor for entitlements, and many contain specific provisions around how annual leave interacts with shift work, public holidays, and patterns of work. How Mellow runs payroll across six countries on one platform gives a sense of how these obligations can be tracked systematically when the workforce is spread across multiple arrangements.
Staying across each employee's entitlements — accrual rate, applicable loading, and current balance — is the most reliable way to avoid underpayment claims and keep your leave liability accurate.
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