How Annual Leave Accrues in Australia
Annual leave accumulates based on an employee’s total work hours. While this varies by role, a full-time employee working 38 hours per week typically earns approximately 4 weeks of annual leave per year.
When Does Leave Accumulate?
Employees continue to build their leave balance while on various forms of paid leave. This includes:
- Annual leave
- Sick and carer’s leave
- Community service leave
- Long service leave
Important Restrictions: You do not accrue leave on any portion of annual leave that you have “cashed out.” Additionally, leave does not accumulate during unpaid leave. This includes the Government’s Paid Parental Leave Scheme, as employers view this as unpaid time.
Annual Leave Payouts Upon Termination
When employment ends, employers must pay out all unused annual leave. This payment must match what the employee would have earned if they had kept working. It must also include leave loading and other standard entitlements. Under Fair Work laws, these rules apply even if an employment contract or agreement claims otherwise.
The Rules for Cashing Out Annual Leave
“Cashing out” occurs when an employee receives a payment for their leave balance instead of taking time away from work.
Are You Eligible to Cash Out?
If you work under an award or registered agreement, you can only cash out leave if your specific agreement allows it. If you do not work under an award, you and your employer can create a mutual arrangement.
Key Compliance Requirements
To legally cash out leave, you must meet these four requirements:
- Minimum Balance: You must keep at least 4 weeks of leave in your balance after the cash-out.
- Written Records: You and your employer must sign a new written agreement for every cash-out transaction.
- Voluntary Choice: The employee must make the decision freely. Employers cannot pressure or force staff to cash out their leave.
- Equal Pay: The payment must equal the full amount the employee would have received by taking the leave.
Get Expert HR Advice
Understanding annual leave accrual and cashing out eligibility is vital for a compliant workplace. The team at Assurance HR Management can guide you through these complex Fair Work requirements.
Contact us today at 1800 577 515 for professional assistance!
