AirComply
| AirComply

Annual Leave Entitlements Under Modern Awards Explained

Annual leave is one of the most valuable entitlements for permanent employees in Australia, and one of the most common sources of payroll errors for employers. A full-time employee accrues 4 weeks (152 hours) of paid annual leave per year. That sounds straightforward until you start dealing with leave loading, shift worker definitions, part-time pro-rata calculations, leave during public holidays, direction to take leave, and cashing out provisions.

This guide breaks down how annual leave works under the National Employment Standards and Modern Awards, with specific clause references and dollar calculations.

The Basic Entitlement: 4 Weeks Per Year

Under section 87 of the Fair Work Act 2009 (part of the National Employment Standards), all permanent employees are entitled to 4 weeks of paid annual leave per year. This is the minimum. Awards and enterprise agreements can provide more, but not less.

For full-time employees: 4 weeks = 20 days = 152 hours per year (based on a 38-hour week)

For part-time employees: 4 weeks pro-rata, based on their ordinary hours. A part-time employee working 20 hours per week accrues 4 weeks x 20 hours = 80 hours of annual leave per year.

For casual employees: No annual leave accrual. This is one of the entitlements that the 25% casual loading is intended to compensate for.

Annual leave accrues progressively throughout the year. It is not granted as a lump sum on an anniversary date. An employee who has worked for 6 months has accrued 2 weeks (76 hours) of annual leave.

Accrual Calculation

The daily accrual for a full-time employee is:

152 hours / 365 days = 0.4164 hours per calendar day

Or, on a per-pay-period basis:

For a part-time employee working 25 hours per week:

Leave Loading: The 17.5% Question

Leave loading is an additional payment made to employees when they take annual leave. It originated in the 1970s when annual leave was seen as a period where employees lost the opportunity to earn penalty rates and overtime. The loading was set at 17.5% to partially compensate for this lost earning potential.

Under most Modern Awards, employees are entitled to a loading of 17.5% of their base rate during annual leave. However, there is an important exception.

The "Greater Of" Rule

Many awards provide that the employee receives either:

(a) The annual leave loading of 17.5% of their base rate, or (b) The penalty rates and loadings they would have received if they had worked during the leave period

— whichever is greater.

This means that for an employee who regularly works weekends, the penalty rates calculation might exceed the 17.5% loading. In that case, the employee is entitled to the higher amount.

Example under the Hospitality Award (clause 35.2):

An employee normally works Thursday, Friday, Saturday, and Sunday. They take 1 week of annual leave.

Option (a) — Leave loading: 38 hours x $23.23 x 17.5% = $154.43 loading

Option (b) — Penalty rates:

The penalty rate calculation ($197.54) is greater than the leave loading ($154.43), so the employee is entitled to the penalty rates calculation in this scenario.

In practice, most payroll systems calculate the leave loading at 17.5% and do not perform the "greater of" comparison. This is a common source of underpayment for employees who regularly work penalty-rate shifts.

Awards Where Leave Loading Is Different

Most awards set the loading at 17.5%, but check the specific award. Some variations include:

Shift Workers: The Fifth Week

Section 87(1)(b) of the Fair Work Act provides that a "shift worker" as defined in the applicable Modern Award is entitled to 5 weeks (190 hours) of annual leave per year, instead of 4 weeks.

The extra week recognises that shift workers regularly work outside normal business hours, including nights, weekends, and public holidays.

However, the definition of "shift worker" for annual leave purposes varies between awards. It is not simply any employee who works shifts.

Common Definitions

Hospitality Award (clause 35.1(b)): A shift worker for annual leave purposes is an employee who is regularly rostered to work Sundays and public holidays. "Regularly" is not precisely defined, but the FWC has interpreted it to mean more than occasionally — typically, working Sundays and public holidays as a normal part of the roster pattern.

General Retail Award (clause 33.2): A shift worker is defined as an employee who works in a business that is continuously rostered 24 hours a day for 7 days a week, provided the employee is regularly rostered to work those hours. This is a narrower definition than the Hospitality Award's.

Clerks Award (clause 29.2): A shift worker is an employee who works shifts as defined in clause 25 (shift work provisions) and who is regularly rostered to work on Sundays and public holidays.

The key point: not every employee who works weekends qualifies for the fifth week. The definition in the specific award must be met.

Dollar Value of the Fifth Week

For a Level 1 full-time employee under the Hospitality Award:

This is a significant cost that many employers fail to account for, especially in hospitality where the shift worker definition is relatively easy to meet.

Accrual During Other Leave Periods

Annual leave continues to accrue during:

Annual leave does not accrue during:

Taking Annual Leave

Minimum Leave Period

Under the NES, there is no minimum period of annual leave that an employee must take. An employee can take a single day (or even a single hour, if the employer agrees). However, some awards specify that annual leave must be taken in periods of at least one day.

Can an Employer Direct an Employee to Take Leave?

Under most Modern Awards, an employer can direct an employee to take annual leave in certain circumstances:

Shutdown periods: Many awards allow an employer to direct employees to take annual leave during a business shutdown (for example, over the Christmas/New Year period). The Hospitality Award (clause 35.5) allows this with at least 28 days' notice. If the employee does not have sufficient accrued leave, the employer can direct them to take unpaid leave for the shutdown period or, in some cases, allow them to take leave in advance.

Excessive leave accrual: Under section 94 of the Fair Work Act and most Modern Awards, if an employee has accrued more than 8 weeks of annual leave (or 10 weeks for a shift worker), the employer can direct them to take leave to reduce the balance. The direction must be reasonable, and the employee must retain a balance of at least 6 weeks after taking the leave.

Can an Employee Be Refused Annual Leave?

An employer can refuse a request for annual leave if the refusal is reasonable. Factors include the operational needs of the business, the amount of notice given, and whether the requested period falls during peak trading times. However, indefinitely refusing leave requests or allowing leave to accumulate excessively is not reasonable.

Annual Leave and Public Holidays

If a public holiday falls during a period of annual leave, the public holiday is not deducted from the employee's annual leave balance. Instead, the employee is treated as being on a public holiday for that day and receives their base rate of pay.

Example: An employee takes annual leave from Monday 21 April to Friday 25 April 2025. Monday 21 April is Easter Monday (public holiday) and Friday 25 April is Anzac Day (public holiday). The employee uses only 3 days (24 hours) of annual leave for Tuesday, Wednesday, and Thursday. Monday and Friday are public holidays and are not deducted from leave.

This rule applies regardless of whether the employee would normally have worked on the public holiday day.

Cashing Out Annual Leave

Under section 94 of the Fair Work Act, annual leave can be cashed out if:

  1. The applicable Modern Award or enterprise agreement permits cashing out
  2. The employee retains a balance of at least 4 weeks of annual leave after the cash-out
  3. The cash-out is by written agreement for each occasion
  4. The employee is paid at least the full amount they would have received if they had taken the leave (including leave loading where applicable)

Not all awards permit cashing out. Awards that do typically include the Hospitality Award (clause 35.7), the Clerks Award (clause 29.8), and the General Retail Award (clause 33.8).

Maximum frequency: Most awards that allow cashing out specify that it can only occur once per 12-month period, and the written agreement must state the amount of leave being cashed out and the payment to be made.

Cashing Out vs Paying Out on Termination

Cashing out during employment and paying out leave on termination are different.

On termination, the employer must pay out all accrued but untaken annual leave, regardless of the amount. This includes leave loading where the award requires it (though some awards only require loading for leave actually taken, not paid out on termination — check the specific clause).

The payment on termination must be at the employee's current base rate at the time of termination, not the rate at which the leave was accrued. If an employee accrued leave when earning $22.00/hr and is terminated when earning $24.00/hr, the leave is paid out at $24.00/hr.

Annual Leave and Termination

When employment ends (for any reason — resignation, dismissal, redundancy, or end of contract), the employer must pay out all accrued but untaken annual leave in the employee's final pay.

Calculation: Accrued leave hours x current base hourly rate (+ leave loading, if applicable under the award for termination payouts)

Example: An employee with 87.5 hours of accrued annual leave is terminated. Their current hourly rate is $24.16.

Whether leave loading is payable on termination depends on the specific award. Some awards (like the Hospitality Award) are silent on this point, which has led to differing interpretations. The safest approach is to pay the loading unless the award explicitly excludes it from termination payouts.

Record-Keeping Requirements

Under the Fair Work Regulations 2009, employers must keep records of:

These records must be kept for 7 years and must be readily accessible for inspection by a Fair Work Inspector. Failure to keep adequate records is a contravention of the Fair Work Act and can result in penalties of up to $16,500 per contravention for an individual or $82,500 for a body corporate.

Common Annual Leave Mistakes

Mistake 1: Not accruing leave for part-time employees

Part-time employees accrue annual leave on a pro-rata basis. An employer who only accrues leave for full-time staff is underpaying part-timers by failing to recognise their leave entitlement.

Mistake 2: Not paying leave loading

Many small businesses pay annual leave at the base rate without the 17.5% loading. Under most awards, the loading is mandatory.

Mistake 3: Not checking the shift worker definition

Hospitality employers in particular often have employees who qualify for 5 weeks of annual leave (because they regularly work Sundays and public holidays) but only accrue 4 weeks. The underpayment compounds year after year.

Mistake 4: Deducting public holidays from leave balances

If a public holiday falls during annual leave, it should not be deducted from the leave balance. Many manual payroll systems get this wrong.

Mistake 5: Paying out leave at the old rate on termination

Annual leave must be paid out at the employee's current rate, not the rate at which it was accrued. An employee who received a pay rise between accruing and using leave is entitled to the higher rate.

Frequently Asked Questions

How much annual leave do full-time employees get?

Full-time employees receive 4 weeks (152 hours) of paid annual leave per year under the NES. Shift workers as defined in the applicable award receive 5 weeks (190 hours).

Do part-time employees get annual leave?

Yes. Part-time employees accrue annual leave on a pro-rata basis. A part-time employee working 25 hours per week accrues 100 hours of annual leave per year (25 hours x 4 weeks).

Do casual employees get annual leave?

No. Casual employees do not accrue annual leave. The 25% casual loading is intended to compensate for the absence of leave entitlements including annual leave.

What is the annual leave loading?

The annual leave loading is an additional payment of 17.5% of the base rate, paid to employees when they take annual leave. It was introduced to compensate for the loss of overtime and penalty rate earning opportunities during leave periods. It is specified in most Modern Awards.

Can I take annual leave in hours instead of days?

This depends on the award and the employer's agreement. Many employers allow annual leave to be taken in hourly increments, though some awards specify a minimum of one day. The NES does not impose a minimum.

What happens if I am sick during annual leave?

If an employee is sick or injured during annual leave, they can re-credit the annual leave and use personal/carer's leave instead (section 89 of the Fair Work Act). The employee must provide evidence (such as a medical certificate) to support the claim.

Can annual leave be taken in advance?

Yes, if the employer agrees. However, if the employee's employment ends before they have accrued enough leave to cover the leave taken in advance, the employer can deduct the overpayment from the final pay. The award or enterprise agreement should be checked for specific provisions on leave in advance.

Check annual leave entitlements and costs with the AirComply Calculator — enter the award and employment type to see exact accrual rates, leave loading, and shift worker eligibility.

Need help with award compliance?

AirComply's AI assistant can look up pay rates for any Modern Award, instantly.

Try the AI Chat Browse Awards
← Back to all posts