Accrued Leave Explained: Essential Guide For Employers

Running a team in Australia means balancing workplace culture with clear, compliant systems. One area that causes confusion is accrued leave - what it is, how it builds up, and what you need to do as an employer to stay on top of it.

In this guide, we’ll unpack what counts as accrued leave, how accrual works across different employment types, how to calculate it correctly, and what to watch for when staff change hours or move on. We’ll also cover the compliance basics so you can reduce risk and support your people with confidence.

What Is Accrued Leave?

Accrued leave is paid leave an employee has earned but not yet taken. In practice, it’s the leave balance that “builds up” as employees work their ordinary hours. This applies primarily to annual leave and personal/carer’s leave (often called sick leave) for eligible employees.

Accrual is progressive - employees earn leave as they work, rather than getting a lump sum at the start of the year. The National Employment Standards (NES) set minimum entitlements, and any applicable award or enterprise agreement may add extra detail (for example, shift worker rules or leave loading).

Getting accruals right matters for legal compliance, budgeting for leave liabilities, and maintaining a fair, transparent workplace. It also helps avoid disputes and potential underpayment issues.

Which Leave Types Accrue In Australia?

Here’s how the main leave types work under Australian law:

• Annual Leave: Accrues for full-time and part-time employees based on ordinary hours (four weeks per year for most, or five weeks for some shift workers). Cashing out annual leave is only permitted if strict conditions are met under an award or agreement and the NES; see an overview of cashing out annual leave.
• Personal/Carer’s Leave (Sick Leave): Accrues for full-time and part-time employees (equivalent of 10 days per year for a full-timer, calculated against ordinary hours on a pro rata basis).
• Long Service Leave: Accrues over long periods of continuous service, but rules and thresholds vary by state and territory legislation.
• Casual Employees: Generally do not accrue paid annual leave or personal/carer’s leave. Casuals often receive a higher hourly rate (casual loading) in lieu of these entitlements. Long service leave rules for casuals depend on state laws and continuity of service.
• Other Leave Types: Some leave entitlements do not accrue. For example, paid family and domestic violence leave is available as an upfront 10-day entitlement for each 12-month period and does not accrue over time. Compassionate leave and community service leave also do not accrue (they’re available as needed under the NES).

It’s important to check any Modern Award or enterprise agreement that applies to your business, as it may set out additional entitlements or different treatment for specific categories of staff. If your contracts or policies need updating to reflect these rules, consider having your Employment Contract terms aligned with the NES and any applicable award.

How Do You Calculate Leave Accruals?

Accrual is based on ordinary hours worked, and it ticks along each pay period. Here’s the general approach:

• Annual Leave (Full-Time): Most full-time employees accrue four weeks per year, which equals 152 hours annually for someone working 38 ordinary hours per week. That equates to roughly 2.923 hours per week (or 7.6 hours per fortnight at 38 hours/week) and is tracked progressively in your payroll system.
• Annual Leave (Part-Time): Accrues pro rata based on ordinary hours. For example, at 19 ordinary hours per week, a part-time employee would accrue half the full-time hours (76 hours per year).
• Personal/Carer’s Leave: Accrues progressively as well. A full-time employee accrues the equivalent of 10 days across the year, calculated on ordinary hours and pro rated for part-timers.
• Public Holidays, Paid Leave and Accrual: Annual leave and personal/carer’s leave typically continue to accrue when an employee is on paid leave or during a paid public holiday, as those are counted as ordinary time.
• Unpaid Leave and Accrual: During periods of unpaid leave (for example, approved unpaid leave outside the NES paid entitlements), annual leave usually does not accrue for that time away. For clarity on policies and practices, you can review leave without pay rules and expectations in this quick guide to leave without pay.

Accrual calculations can get tricky if an employee’s ordinary hours change, or if they move between part-time and full-time. Good payroll settings are essential - and it’s wise to check how your system handles transitions so balances remain accurate.

If you provide annual leave loading under an award or agreement, make sure your payroll calculations are set up to handle loading correctly when leave is taken. You can brush up on how leave loading works here: annual leave loading.

Worked Examples (At A Glance)

• Full-Time Employee (38 hours/week): Accrues 152 hours annual leave per year - this is typically displayed in hours in your payroll system and increases each pay run.
• Part-Time Employee (20 hours/week): Accrues at the same ratio, so 80 hours of annual leave across a year (equivalent to four weeks at their ordinary hours).
• Personal/Carer’s Leave: Accrues progressively against ordinary hours, equivalent to 10 days for a full-timer each year, pro rated for part-timers.

Managing Accruals In Practice

The rules are one thing, but day-to-day management is where errors often creep in. Below are common situations and how to approach them.

When Employees Change Hours Or Patterns

If an employee moves from part-time to full-time (or the other way around), update their payroll settings from the effective date. Existing leave stays on the books, and new accrual occurs at the new ordinary hours. Confirm the change in writing and ensure your payroll software recalculates accrual rates moving forward.

When changing hours or role responsibilities, it’s good practice to update the contract terms. Our guide to changing employment contracts walks through common scenarios and the legal steps to manage them fairly.

Unpaid Leave Periods

Approved unpaid leave generally pauses accrual for the time an employee is not on paid ordinary hours. This can include unpaid parental leave and other extended unpaid absences. Make sure payroll entries reflect unpaid periods correctly to avoid over-accrual.

Displaying And Communicating Balances

Employees value transparency around leave. While the law requires accurate record-keeping, payslips do not need to show leave balances under the Fair Work requirements. However, providing balances via your HRIS or payroll portal is a strong practice and helps reduce confusion and disputes.

To support consistency, set out your team’s leave request process, notice requirements and approval rules in written policies. A clear, accessible workplace policy (or staff handbook) helps everyone follow the same approach.

When Employment Ends: Paying Out Accrued Leave

When an employee finishes employment, you must pay out unused, accrued annual leave. This payout is made at the employee’s base rate of pay for ordinary hours at the time of termination, unless an award, agreement or contract provides for a different calculation (for example, leave loading if it ordinarily applies when annual leave is taken). Penalty rates and allowances do not automatically apply to the payout unless required by the relevant instrument.

Personal/carer’s leave is not paid out on termination. Long service leave payout on termination depends on state or territory legislation and the circumstances of the exit (for example, resignation versus redundancy) - check the rules that apply to your location.

If you’re working through the final amounts for a departing team member, this guide to calculating final pay is a handy reference, and you can also review how annual leave payments are treated in different scenarios.

Compliance Essentials For Employers

Keeping on top of your legal obligations around leave is mostly about good systems and consistent documentation. Here are the essentials.

Record-Keeping

• Accurate Leave Records: Keep clear records of each employee’s leave accrued and taken. Records must be kept for the period required by law (commonly at least 7 years).
• Payslips: Include the mandatory details (for example, pay period, gross and net amounts, hours where appropriate, loadings/allowances if paid, and super contributions). It is not a legal requirement to show leave balances on the payslip, though many employers provide balances via HR portals for transparency.
• Audit Trail: Ensure your payroll system can show how accruals were calculated if you’re ever asked to demonstrate compliance.

Contracts, Awards And Policies

• Employment Contracts: Contracts should clearly state employment type (full-time, part-time, casual), hours, any applicable award or agreement, and how leave is managed. If you’re hiring new staff or want to standardise terms, start with a compliant Employment Contract tailored to your business.
• Awards And Agreements: Always check if a Modern Award or enterprise agreement applies. It may prescribe different rules for accrual, shift work, leave loading or cashing out.
• Policies: Document your application and approval process, notice periods and any business rules around taking leave (for example, managing peak periods). A simple, accessible workplace policy keeps everyone on the same page.

Common Mistakes To Avoid

• Incorrect Accrual Settings: Not updating payroll settings when someone changes hours can lead to over- or under-accrual.
• Assuming All Leave Accrues: Remember that some entitlements (such as paid family and domestic violence leave) are available upfront each year and do not accrue progressively.
• Confusing Allowances And Payouts: On termination, accrued annual leave is generally paid at base rate unless an award/agreement or contract requires otherwise (for example, leave loading). Don’t automatically add penalties or allowances unless the rule genuinely applies.
• Missing Award Nuances: Shift workers, certain rosters and industry rules can affect accrual or entitlements. Always check the correct instrument before finalising a policy or payout.
• Poor Documentation: Verbal understandings around hours or leave often create disputes later. Confirm changes in writing, and keep clean records.

Helpful Practices That Reduce Risk

• Set Clear Expectations Early: Make sure contracts, onboarding and policies align and are easy to understand.
• Encourage Regular Leave: Large annual leave balances increase your leave liability and can impact wellbeing. A proactive approach to planning time off helps both sides.
• Train Managers: Ensure managers understand the basics of accruals, approvals and record-keeping so they don’t make ad hoc decisions that cut across awards or contracts.
• Review Before Changes: If you’re restructuring roles, altering rosters or implementing new systems, review how leave will be affected and update documents. If you’re not sure, it’s wise to get advice before rolling out changes.

If you’re updating terms or processes as your business grows, it can help to sanity-check your approach against current law - particularly if you’re shifting people across roles or working patterns. When you need to formalise updates, consider documenting them properly rather than leaving changes informal or implied.

Optional Extras: Policies Around Cashing Out And Leave Loading

If an applicable award or agreement allows cashing out annual leave, set clear rules that reflect the law and your operational needs (for example, minimum remaining balances and written agreements). If your business offers leave loading, document when it applies (for instance, when annual leave is taken, and if applicable to termination payouts under your award/agreement). For more detail, see annual leave loading and the guide to cashing out annual leave.

Key Takeaways

• Accrued leave is paid leave earned progressively as employees work their ordinary hours - primarily annual leave and personal/carer’s leave for eligible staff.
• Full-timers accrue four weeks of annual leave per year (five for some shift workers); part-timers accrue pro rata; most casuals don’t accrue annual or personal/carer’s leave.
• Not all leave accrues. Paid family and domestic violence leave is available upfront each year and does not accrue, and compassionate or community service leave is taken as needed.
• On termination, unused accrued annual leave must be paid out at base rate for ordinary hours unless an award, agreement or contract requires something different (such as leave loading). Personal/carer’s leave isn’t paid out.
• Good systems matter: keep accurate records, configure payroll correctly, and document changes to hours or roles. Payslips don’t need to show leave balances by law, but it’s smart to provide visibility via your HR or payroll portal.
• Use clear contracts and policies to set expectations. If you’re formalising new terms, an up-to-date Employment Contract and a practical workplace policy will help avoid misunderstandings.
• If you’re finalising a departure, double-check entitlements and timing with a reference like calculating final pay and confirm how annual leave payments apply in your circumstances.

If you’d like a consultation on managing accrued leave or any other employment law questions, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligation chat.