Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Getting annual leave accruals right is one of those payroll basics that protects your business and keeps your team happy.
But even experienced employers sometimes ask: what is the annual leave accrual rate per hour, exactly? How do I apply it to part-time staff, shiftworkers or employees who change hours?
In this guide, we break down the numbers in plain English, walk through examples, and flag the policy and contract settings that help you avoid disputes later.
What Is Annual Leave And Who Accrues It?
Under the National Employment Standards (NES), permanent employees (full-time and part-time) are entitled to paid annual leave.
- Most permanent employees accrue 4 weeks of paid annual leave per year of service, based on their ordinary hours.
- Qualifying “shiftworkers” (as defined by the relevant award or agreement) accrue 5 weeks per year.
- Casual employees generally do not accrue annual leave under the NES (they receive a casual loading instead), unless an enterprise agreement or contract says otherwise.
Annual leave accrues progressively during the year and carries over if unused. It’s a core entitlement, so calculating and recording it accurately is important from day one.
How To Calculate The Annual Leave Accrual Rate Per Hour
The simplest way to think about it is: annual leave accrues as a fraction of an employee’s ordinary hours worked.
The Standard Rate (4 Weeks Per Year)
For an employee entitled to 4 weeks per year, the hourly accrual rate is 0.076923 hours of leave per ordinary hour worked.
- Why? A standard full-time year is 38 hours × 52 weeks = 1,976 ordinary hours.
- Four weeks of leave at 38 hours per week = 152 hours of annual leave.
- 152 ÷ 1,976 = 0.076923 (that’s 7.6923%).
So for each ordinary hour worked, the employee accrues about 0.0769 hours of annual leave.
The Shiftworker Rate (5 Weeks Per Year)
For a qualifying shiftworker entitled to 5 weeks per year, the hourly accrual rate is 0.096154 hours per ordinary hour worked.
- 190 hours of leave (38 × 5) ÷ 1,976 ordinary hours = 0.096154 (9.6154%).
Shortcut Percentages
- 4 weeks entitlement = 7.6923% of ordinary hours
- 5 weeks entitlement = 9.6154% of ordinary hours
Most payroll systems let you store one of these as the employee’s leave accrual rule. Just be careful to pick the right entitlement category for each employee (ordinary vs qualifying shiftworker).
Worked Examples For Full-Time, Part-Time And Shiftworkers
Here are practical scenarios to help you sense-check your setup.
1) Full-Time Employee (38 Hours Per Week)
- Ordinary hours in a fortnight: 76
- Accrual rate: 0.076923
- Fortnightly accrual: 76 × 0.076923 ≈ 5.846 hours of annual leave
That aligns with the common figure many payroll systems display (around 2.923 hours per week or 5.846 hours per fortnight for full-time employees).
2) Part-Time Employee (20 Hours Per Week)
- Ordinary hours in a fortnight: 40
- Accrual rate: 0.076923
- Fortnightly accrual: 40 × 0.076923 ≈ 3.077 hours of annual leave
Part-time staff accrue at the same rate as full-time staff, but only on their actual ordinary hours.
3) Shiftworker (38 Ordinary Hours Per Week, 5 Weeks Entitlement)
- Ordinary hours in a fortnight: 76
- Accrual rate (shiftworker): 0.096154
- Fortnightly accrual: 76 × 0.096154 ≈ 7.308 hours of annual leave
Always check your award or enterprise agreement to confirm who qualifies as a “shiftworker” for the 5-week entitlement.
4) Variable Hours (Part-Time With Changing Roster)
If a part-time employee’s ordinary hours vary week to week, their annual leave still accrues as a percentage of ordinary hours actually worked at the time. Your payroll system should apply the same hourly rate (e.g. 0.076923) to whatever ordinary hours were worked during the pay period.
5) Accrual While On Paid Leave
Annual leave continues to accrue during most forms of paid leave, including paid annual leave and paid personal/carer’s leave. It typically does not accrue during unpaid leave (including most unpaid parental leave), unless an award, enterprise agreement or contract says otherwise.
If your business uses periods of unpaid leave, make sure the rules are set out clearly and aligned with the NES and any applicable award. A short, plain-language Leave Without Pay guide for your managers can prevent errors in payroll.
What Hours Count Toward Accrual (And What Don’t)?
This is where many businesses slip up. The NES principle is that annual leave accrues on ordinary hours worked, not on overtime unless an award or agreement specifies otherwise.
Typically Counted Toward Accrual
- Ordinary hours worked (as per contract/award)
- Paid annual leave
- Paid personal/carer’s leave
- Some other paid leave types (e.g. paid compassionate leave)
Typically Not Counted Toward Accrual
- Overtime hours (unless your instrument says otherwise)
- Unpaid leave (including unpaid parental leave, unless an instrument provides accrual)
- Certain periods on workers compensation where the employee is not working (this can be jurisdiction-specific; get advice if unsure)
Because rules can vary across awards and enterprise agreements, it’s smart to mirror the exact definition of “ordinary hours” and leave accrual triggers in your Employment Contract and payroll setup.
Setting Up Payroll, Policies And Contracts The Right Way
Getting the maths right is only half the job. The rest is about clear documentation, consistent processes and clean exit calculations when someone leaves.
Lock In A Clean Employment Contract
Your Employment Contract should set the foundation:
- State the employee’s status (full-time, part-time, casual) and their ordinary hours.
- Reference the applicable award or enterprise agreement (if any) and NES entitlements.
- Set out your approach to rostering, overtime approval and how leave is requested and approved.
If you’re updating terms to align with current practices, it’s good to handle changes carefully and lawfully. If you need to make changes, check out practical guidance on changing employment contracts so you stay compliant and avoid disputes.
Support With Clear Policies
Policies help your managers apply leave rules consistently.
- A concise Leave Policy in your Workplace Policy or staff handbook clarifies how accrual works, notice required for time off, black-out periods, and when evidence may be requested.
- Spell out how you manage cashing out leave where permitted (and the safeguards required).
- Include how leave interacts with public holidays, shutdowns or rostered days off under the relevant instrument.
Where awards or agreements provide it, some employees may receive Annual Leave Loading when they take annual leave. Your policy and payroll settings should reflect when loading applies.
Exit Calculations And Payouts
On termination, you’ll need to pay out accrued but untaken annual leave at the correct rate (and in many cases, include leave loading if it would have applied during the leave period).
To smooth this process, make sure your payroll system calculates entitlements accurately and your team follows a clear checklist for calculating final pay. If the employee isn’t working out their notice, you may also need to consider payment in lieu of notice.
If an employee resigns with leave on the books, you’ll also need to follow the rules for annual leave on resignation and provide final payslips with clear leave balances and payout components.
Managing Annual Leave In Real Life: Common Scenarios
The accrual rate per hour is straightforward in theory. Real life throws curveballs. Here’s how to approach common situations.
Rostering Changes Or Part-Time Hours Increasing/Decreasing
When part-time ordinary hours change, the accrual rate per hour remains the same. What changes is the number of ordinary hours to which you apply the rate each pay period.
Tip: Keep a written variation on file showing the new ordinary hours and the date the change takes effect. This helps explain any step-change in accrual figures on payslips.
Public Holidays
Annual leave accrues based on ordinary hours over time, not because a public holiday falls in a pay period. However, when an employee takes annual leave over a period that includes a public holiday, different payment rules can apply under the NES or the relevant instrument (for example, a public holiday during annual leave may be treated as a public holiday rather than a day of annual leave). Your payroll system and policy should handle this automatically with the right classification codes.
Overtime And Time Off In Lieu
Overtime generally does not count toward annual leave accrual unless an instrument says otherwise. If your business uses TOIL arrangements, set them out clearly in policy or under an award-compliant agreement so managers don’t confuse TOIL with annual leave. For separate guidance, you can review how Time Off In Lieu typically works in Australia.
Unpaid Leave And Shutdown Periods
Annual leave typically does not accrue during unpaid leave. If you regularly use unpaid leave (for example, during low season) or you run annual shutdowns, make sure your instruments allow for any directions to take annual leave and that your rules are reflected in your contracts and policies. For scenarios where unpaid leave may be necessary, ensure your approach aligns with your obligations under the NES and any award, and double-check your handling against guidance on unpaid leave.
Cashing Out Annual Leave
Some awards and agreements allow annual leave to be cashed out if strict conditions are met (e.g. a written agreement each time, minimum balance remaining). Make sure your payroll configuration captures these requirements and that managers follow the policy consistently. If leave loading would have applied during a period of leave, factor that into the cash-out amount where required.
Accrual While On Workers Compensation Or Parental Leave
Whether annual leave accrues during periods on workers compensation can depend on the circumstances and the applicable state or territory scheme. Annual leave typically does not accrue during unpaid parental leave under the NES. If you’re unsure, it’s best to get tailored advice before you set a precedent in your policy or payroll.
Payslips And Record-Keeping
Payslips must show leave balances for most employees. It’s good practice to show both hours accrued and hours taken so employees can self-check their balances. Keep accurate records of accrual methods, policy updates and any variations to ordinary hours. If there’s ever a query, you’ll be able to demonstrate how the accrual rate per hour was applied.
FAQs: Annual Leave Accrual Rate Per Hour
What if my award says something different?
If a modern award or enterprise agreement contains a specific rule that differs from the NES defaults, you must follow the instrument. Always check definitions (e.g. “shiftworker”) and any clauses that change the accrual method.
Should I accrue in hours or days?
Hours are cleaner and more accurate, especially for part-time employees or those with changing rosters. Most systems store annual leave in hours using the standard accrual rate per hour.
Do casuals ever accrue annual leave?
Under the NES, casuals don’t accrue annual leave and typically receive a loading instead. An enterprise agreement or individual contract could provide different entitlements, so check what applies in your workplace.
How often should I run accruals?
Most employers accrue leave each pay cycle so balances stay current and payslips are up to date. Annual accrual on a year-end basis is risky because it can mask errors and cause large corrections later.
What about annual leave loading?
Leave loading is separate to accrual. If an award, agreement or contract provides for it, you apply the loading to the payment when annual leave is taken (or cashed out in permitted circumstances), not to the accrual of hours. Make sure your payroll settings reflect your obligations on Annual Leave Loading.
Key Takeaways
- The standard annual leave accrual rate per hour is 0.076923 (7.6923%) for 4 weeks per year; qualifying shiftworkers use 0.096154 (9.6154%) for 5 weeks.
- Accrual applies to ordinary hours worked and most paid leave; it usually does not apply to overtime or unpaid leave unless an instrument requires it.
- Use hours (not days) for cleaner accruals, especially for part-time and changing rosters, and keep your payroll configuration aligned with awards and the NES.
- Back up your practice with an Employment Contract that sets ordinary hours and a clear Workplace Policy covering leave requests, approvals and cashing out rules.
- Factor in leave loading (where applicable) when paying annual leave or permitted cash-outs, and follow a consistent process for calculating final pay on exit.
- If an award or agreement deviates from default rules, follow the instrument and update your contracts, policies and payroll setup accordingly.
If you’d like a consultation on setting up annual leave accruals, policies and contracts for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
