Annual Leave under the Fair Work Act

From 1 January 2010 annual leave entitlements form part of the National Employment Standards (NES) and replace minimum entitlements under the Australian Fair Pay and Conditions Standard (the Standard).

How much annual leave does an employee get?

Under the NES, all employees (except casual employees) get paid annual leave based on their ordinary hours of work.

Note:The annual leave entitlement below comes from the NES. An annual leave entitlement that comes from an award or agreement may be different, but cannot be less than the NES entitlement.

An employee is entitled to:

  • 4 weeks annual leave for each 12 months of service
  • 5 weeks annual leave for some shift workers for each 12 months of service.

Note:

  • This doesn't apply to casuals
  • To qualify for the shift work entitlement of five weeks annual leave, the employee must either be classified as a shift worker under an award or agreement, or if not covered by an award or agreement, they must meet all of the following criteria
  • They are employed in an enterprise where shifts are continuously rostered 24 hours a day for seven days a week
  • They are regularly rostered to work those shifts
  • They regularly work on Sundays and public holidays
  • Awards and agreements may provide for additional annual leave entitlements over and above those provided in the NES

How much is the employee paid?

The employer must pay annual leave at the employee's base rate of pay for their ordinary hours during the period of leave.

This doesn't include separate entitlements such as incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates.

On termination of employment an employer must pay an employee in respect of any accrued untaken paid annual leave.

Calculating annual leave

Under the NES, an employee’s entitlement to annual leave accrues progressively during a year of service according to their ordinary hours of work and accumulates year to year.

Taking annual leave

An employee can take paid annual leave when their employer has agreed to their request for leave. The employer must not unreasonably refuse to agree to a request to take annual leave.

There's no minimum or maximum amount of accrued annual leave that must be taken at a time.

Directing an employee to take annual leave

An award or agreement (including transitional award or agreement based instruments) may allow for an employee to be directed to take annual leave in certain circumstances, for example:

  • During a period of shut down (such as between Christmas and New Year)
  • If the employee has an excessive accumulated annual leave balance
  • However, the employer’s requirement or direction to take leave must be reasonable, taking into account factors such as
  • The needs of the employee and the employer’s business
  • Any agreed arrangement with the employee
  • Custom and practice of the business
  • Timing of the direction or requirement to take leave
  • Reasonableness of the period of notice given

Cashing out annual leave

Under the NES, for employees covered by an award or agreement (including transitional award or agreement based instruments) annual leave can be cashed out if the award or agreement (including transitional award or agreement based instruments) allows it. Award/agreement free employees may also agree with their employer to cash out annual leave.

However, for all employees that agree to cash out annual leave, the following conditions apply:

  • The employee must retain an entitlement to least four weeks paid annual leave
  • There is a separate agreement in writing on each occasion that leave is cashed out
  • The employer must not exert undue influence or undue pressure on an employee to agree to cash out an amount of annual leave
  • The employee must be paid at least the full amount that would have been payable had the annual leave been taken

Is accrued annual leave paid out on a transfer of employment?

A ‘transfer of employment’ occurs when an employee moves from one employer (the old employer) to another employer (the new employer) within three months of a transfer of business and performs substantially the same work for the new employer as they performed for the old employer.

A transfer of employment can also occur where an employee moves from one employer (the old employer) to another employer (the new employer) who is an associated entity of the old employer within 3 months of ending employment with the old employer.

A transfer of business can occur where one of the following connections between the old employer and the new employer exists:

  • A transfer of assets
  • Outsourcing
  • Insourcing
  • Where the two employers are associated entities

When there is a transfer of employment, the period of service with the old employer will generally count as service with the new employer, and the employee will keep any annual leave balance they had accrued with the old employer.

However, where the employers are not associated entities, the new employer can decide not to recognise an employee’s service in relation to annual leave with the old employer. In such cases, the old employer will be required to pay out the employee’s untaken accrued annual leave.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
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