You have a full-time employee who has asked to take their accrued annual leave, or you are about to pay out a final balance, and you want the number you put on the payslip to be defensible. The question is parametric — full-time, part-time, shiftworker, award-covered, award-free — and each variant has a slightly different figure attached.
The rule sits in the National Employment Standards, set out in Part 2-2 Division 6 of the Fair Work Act 2009 (Cth). Under s 87, an employee other than a casual accrues four weeks of paid annual leave for each year of service, based on their ordinary hours of work. Certain shiftworkers get five weeks. Leave accrues progressively from the first day of employment and carries over year to year until taken or paid out.
The NES sets a floor. A modern award, enterprise agreement or contract can give more — never less. If your contract is silent on annual leave, the NES still applies; if it says three weeks, the NES still applies.
Entitlement by employee type
| Employee type | Annual leave entitlement | What drives the figure |
|---|---|---|
| Full-time (38 ordinary hours/week) | 4 weeks per year = 152 hours | s 87(1)(a) — based on ordinary hours |
| Full-time (non-standard ordinary hours) | 4 × ordinary weekly hours | Same rule, different base |
| Part-time | Pro-rata of 4 weeks, by ordinary hours | s 87(2) — progressive accrual on ordinary hours |
| Shiftworker (as defined in award/agreement) | 5 weeks per year | s 87(1)(b) and s 87(3) |
| Casual | Nil paid annual leave | s 87(1) excludes casuals; loading compensates |
| Award/agreement-free | Same NES minimum (4 or 5 weeks) | NES applies directly |
The shiftworker uplift is not automatic. The fifth week only applies where a modern award or registered agreement defines or describes the employee as a shiftworker for the purposes of the NES, or where the employee is award/agreement-free and is regularly rostered to work on Sundays and public holidays in a continuously operating enterprise. Check the coverage clause in the instrument before assuming.
A worked calculation — the standard case
A full-time employee works 38 ordinary hours per week. They started on 1 July and have been employed for nine months continuously.
- Annual entitlement: 4 weeks × 38 hours = 152 hours per year of service.
- Weekly accrual: 152 ÷ 52 = 2.923 hours per week (or roughly 0.0769 of an ordinary week).
- Service period: 39 weeks (1 July to end March).
- Accrued balance: 39 × 2.923 = 113.99 hours (about 3 weeks).
If the employee takes the full balance as leave, you pay them at their base rate of pay for their ordinary hours during the leave period — s 90(1). The base rate excludes overtime, penalty rates, bonuses, and most allowances, unless the applicable award, agreement or contract says otherwise.
Where the applicable instrument requires annual leave loading — commonly 17.5% — that loading is paid on top of the base rate. The Fair Work Ombudsman confirms that the leave payment must equal what the employee would have received had they taken the leave, including any loading or penalty arrangements specified by the instrument.
A second worked calculation surfaces the part-timer case. A part-time employee with 20 ordinary hours per week accrues 4 × 20 = 80 hours per year, or 80 ÷ 52 = 1.538 hours per week. After 18 months of continuous service with no leave taken, the balance is 78 × 1.538 = 119.99 hours — roughly six of their working weeks.
Edge cases and carve-outs
- Unpaid leave periods. Accrual generally pauses during unpaid leave (unpaid parental leave, unpaid leave by agreement). Paid forms of leave — paid annual leave, paid personal/carer's leave — continue to count as service and accrue further leave on top.
- Workers' compensation. The interaction depends on jurisdiction and on whether the employee is performing any work. As a default, annual leave does not accrue during periods of absence on workers' compensation, but state-based workers' compensation legislation and the applicable award can change this. Confirm against the specific instrument.
- Excess balance direction. Under most modern awards, an employer can direct an employee to take annual leave once their balance exceeds eight weeks (ten weeks for a shiftworker), subject to the notice and reasonableness conditions in the award. See the Fair Work Ombudsman's direction to take excess annual leave page for the standard award wording.
- Shutdown direction. Under recent changes to most modern awards, an employer running a temporary shutdown (such as Christmas closure) can direct employees to take paid annual leave during the shutdown, with at least 28 days' written notice, provided the direction is reasonable. Where an employee has insufficient accrued leave, unpaid leave may be taken by agreement.
- Cashing out. An award- or agreement-covered employee can cash out annual leave only where the instrument permits, in writing, with at least four weeks of leave remaining after the cash-out, and a maximum of two weeks cashed out in any 12-month period under most awards. An award/agreement-free employee can cash out under s 94 of the Fair Work Act on the same minimum-balance and written-agreement conditions. See the cashing out annual leave page.
- Public holidays during leave. A public holiday that falls within a period of annual leave is not deducted from the balance — s 89(1). It is paid as a public holiday under the usual arrangements.
- Termination payout. On termination, accrued but untaken annual leave is paid out at the rate the employee would have received had they taken the leave, including any applicable annual leave loading (the Fair Work Ombudsman confirms loading applies on termination even where the instrument is silent).
Getting the figure right — where Artificer Legal helps
The standard case is mechanical. The figure goes wrong on the edges, and the edges are where small businesses get audit findings and underpayment claims.
We help clients by:
- Confirming the ordinary-hours base for staff whose roster pattern is irregular — averaged hours, compressed weeks, or split shifts where the contract and the timesheet disagree.
- Reading the applicable modern award against the employee's actual duties, particularly the shiftworker definition (which often turns on rostering frequency, not just the job title).
- Reviewing cash-out arrangements and excess-balance directions against the award text and the s 94 conditions, including the written-agreement records you must keep.
- Calculating termination payouts where the employee's service includes a period of workers' compensation, unpaid parental leave, or a transfer of business — each of which alters the accrued balance in a way that payroll defaults often miss.
- Drafting or updating the annual leave clauses in employment contracts, staff handbooks and shutdown notices so they line up with both the NES and the applicable instrument.
If you need a defensible figure on a specific employee's file — for an audit, a termination, or an internal payroll review — get the calculation reviewed before it gets paid out. Reversing an underpayment after the fact costs more than the legal check.
The variable that catches employers out
The figure most often quoted incorrectly is the shiftworker five-week entitlement. Employers assume that a "shift" pattern alone qualifies the employee for the extra week. It does not — the entitlement turns on the shiftworker definition in the applicable award or agreement, and many awards require the employee to be regularly rostered across the seven days of the week and on public holidays. A late-afternoon roster in a Monday-to-Friday operation almost never qualifies.
Full-time employees accrue four weeks of paid annual leave per year of service under s 87 of the Fair Work Act 2009 (Cth), measured against their ordinary hours of work; on a 38-hour week that is 152 hours per year, accruing at 2.923 hours per week. Part-time employees accrue on the same rule, pro-rata. Some shiftworkers get five weeks where the award or agreement defines them that way. Leave is paid at base rate, plus any award-required loading (commonly 17.5%). Excess balances can be directed down under most awards once they exceed eight weeks; shutdown directions need at least 28 days' written notice under most awards. Cashing out is permissible in writing with at least four weeks remaining. On termination, the full accrued balance is paid out at the rate the employee would have received on leave, loading included.