Managing leave around public holidays in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Public holidays in Australia do not automatically extend or cancel an employee's annual leave — instead, specific rules govern how the two interact, and getting those rules wrong can create underpayment liabilities.
How public holidays interact with annual leave
When a public holiday falls within an employee's approved annual leave period, that day is treated as a public holiday, not a day of annual leave. In practical terms, the employee does not have an annual leave day deducted for that public holiday. Under the National Employment Standards (NES), employees are entitled to four weeks of annual leave per year, and that entitlement is not meant to be quietly eroded by public holidays landing in the middle of a leave block.
For example: if an employee takes two weeks off and three public holidays fall within that period, only seven working days are deducted from their annual leave balance, not ten.
This is a common payroll error. Businesses that auto-deduct all calendar days, including public holidays, within a leave period end up short-changing employees over time.
Which public holidays apply to which employees
Australia has a layered public holiday system. National public holidays — New Year's Day, Australia Day, Good Friday, Easter Monday, Anzac Day, the King's Birthday (where observed nationally), Christmas Day and Boxing Day — apply broadly. On top of those, each state and territory has its own additional public holidays, and some are observed on different dates.
The relevant public holiday is generally the one in the state or territory where the employee is based. This matters when you have employees working across multiple locations, or remote employees living in a different state from your head office. A Melbourne-based employee working for a Sydney business observes Victorian public holidays, not NSW ones.
Award and enterprise agreements can add further complexity. Some industries have award-specific public holidays, or rules about penalty rates when employees work on a public holiday. Check the relevant Modern Award carefully — the Fair Work Commission's award finder is the authoritative source.
When an employee works on a public holiday
Under the NES, an employee can only be required to work on a public holiday if the request is reasonable. Factors such as the nature of the role, the employee's personal circumstances, and the amount of notice given all bear on whether a request is reasonable. An employee can refuse on reasonable grounds.
If an employee does work on a public holiday, their entitlement is set by the applicable Modern Award or enterprise agreement — typically a penalty rate or a substitute day off in lieu. Neither of those is optional. Payroll needs to capture these events accurately, because STP reporting at each pay event means the ATO sees payroll data in real time.
Leave management across a long weekend or shutdown
Many businesses run a Christmas–New Year shutdown or close across long weekends. A shutdown period that includes public holidays still requires only the non-public-holiday working days to be taken as annual leave. If a shutdown covers, say, ten calendar days but four of those are public holidays, employees are only required to use six days of leave.
Where an employee does not have enough annual leave accrued to cover the non-public-holiday working days in a shutdown, the approach varies. Awards differ — some allow direction to take leave in advance, others do not. Some awards allow unpaid leave to cover the gap; others leave the employer with limited options. Again, the relevant Award clause governs. Getting this wrong can expose the business to underpayment claims.
It is worth noting that how Mellow runs payroll across six countries on one platform gives some context on how leave rules integrate with payroll processing when the rules are jurisdiction-specific.
Keeping records and managing employee expectations
Accurate leave records are not optional. You need to be able to show how leave balances were calculated, which days were treated as public holidays, and what was paid. Under single touch payroll, leave balances reported through STP must align with your internal records.
A clear written leave policy helps employees understand how public holidays are treated during annual leave, how shutdown periods work, and what the process is for requesting leave over peak periods. Setting expectations in writing — before disputes arise — is a straightforward way to avoid grievances.
Public holidays vary by state, change dates occasionally (particularly the King's Birthday and Easter-adjacent dates), and can shift for one-off events. Building a habit of confirming the applicable public holiday dates for each state where you have employees at the start of each calendar year keeps payroll accurate and avoids retrospective corrections.
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