Annual Leave Policy Template: What to Include

If you employ staff in Australia, annual leave is one of those “must get right” basics. But in practice, it’s easy for things to get messy - especially as your team grows, people work different hours, and managers approve leave in different ways.

That’s where using an annual leave policy template can help. A good policy helps you explain the rules clearly, apply them consistently, and reduce the risk of misunderstandings (or disputes) later.

In this guide, we’ll walk through what an annual leave policy should cover, how to tailor an annual leave policy template for your business, and how to roll it out in a way that actually works day-to-day.

What Is An Annual Leave Policy (And Why Do You Need One)?

An annual leave policy is a written workplace policy that sets out how annual leave works in your business. It usually sits alongside your employment contracts and other workplace policies (like leave, performance, conduct, and rostering).

Even though the Fair Work Act and modern awards (and/or enterprise agreements) contain rules about annual leave, a policy is still valuable because it answers the practical questions your team will ask, like:

How do we request annual leave?
How much notice do we need to give?
When might the business say “no” (and what counts as a reasonable refusal)?
Can we take annual leave during a shutdown period?
How do part-time staff accrue leave, and what about leave loading?

From an employer perspective, an annual leave policy can also help you:

standardise approvals (so different managers aren’t making inconsistent calls)
plan staffing and manage peak periods
encourage employees to take leave regularly (reducing burnout risks)
set expectations about compliance (including evidence and recordkeeping)

It’s also a practical companion to your Employment Contract, because the contract can set the legal framework while the policy covers how things run operationally.

What The Law Says About Annual Leave In Australia (Employer-Friendly Overview)

Before you use an annual leave policy template, it helps to understand the legal “floor” you can’t go below. In Australia, annual leave is primarily governed by the National Employment Standards (NES) under the Fair Work Act 2009 (Cth), and then may be supplemented by:

modern awards
enterprise agreements
employment contracts (so long as they don’t undercut the NES)

Who Gets Annual Leave?

Generally, full-time and part-time employees accrue paid annual leave. Most casual employees do not accrue annual leave (they typically receive casual loading instead).

If you’re unsure how entitlements apply to different engagement types, it’s worth checking your award coverage and ensuring your contracts reflect the correct classification.

How Much Annual Leave Do Employees Get?

Under the NES, full-time employees generally accrue 4 weeks of paid annual leave per year, progressively throughout the year, based on ordinary hours of work. Part-time employees accrue on a pro-rata basis.

Some shiftworkers may be entitled to additional annual leave, but the definition of “shiftworker” and the extra entitlement can depend on the NES criteria and any applicable award or enterprise agreement.

Can You Refuse Annual Leave Requests?

In many workplaces, you can refuse a request in some circumstances, but the rules depend on what applies to the employee (including the NES and any applicable award or enterprise agreement). For award/EA-covered employees, there are often specific requirements around when a request can be refused and what counts as “reasonable”.

Practically, your annual leave policy should explain how your business assesses requests - for example, minimum staffing levels, peak season restrictions, and how competing leave requests are handled.

Where employers often trip up is not having clear criteria (or not applying criteria consistently). That’s why having a policy matters.

Can You Direct An Employee To Take Annual Leave?

In some circumstances, yes - but it depends on the facts and the applicable industrial instrument. For example, certain awards and agreements allow directions to take leave during a shutdown, or allow directions where an employee has an excessive annual leave balance, provided the direction is reasonable and the correct process (including any notice requirements) is followed.

If your business has periods where you close (for example, between Christmas and New Year), your policy should clearly set out how shutdown leave works, what notice will be given, and what happens if an employee doesn’t have enough accrued leave (which can be award/EA-specific, and may require agreement for options like leave without pay).

Annual Leave On Termination Or Resignation

When employment ends, unused accrued annual leave is generally paid out in the final pay (including any applicable leave loading, if it applies).

Because final pay is a common risk area (and often time-sensitive), it’s a good idea to ensure your policy aligns with your payroll process and your termination procedures. Many businesses also keep this consistent with what’s covered in their final pay guidance and related processes.

What To Include In An Annual Leave Policy Template (A Practical Checklist)

A strong annual leave policy template for Australian businesses should be clear, easy to follow, and tailored to how your workplace actually operates.

Below is a checklist of the clauses and sections we typically recommend including.

1. Purpose And Scope

Set the scene. Explain what the policy covers, who it applies to (full-time/part-time employees, and whether casuals are excluded), and how it interacts with the NES, awards, agreements, and employment contracts.

This also helps avoid confusion where people assume “policy overrides everything” (it doesn’t), or where managers apply the policy to casuals when it’s not appropriate.

2. Definitions (Optional, But Helpful)

Define key terms in plain English, especially if your team has a mix of office staff and shift-based staff. Common definitions include:

annual leave
accrued leave
ordinary hours
leave year / leave cycle
peak periods / blackout periods
shutdown period

3. Accrual And Entitlements

Explain, at a high level, how leave accrues and what the standard entitlement is. Avoid overcomplicating this section - you can simply confirm that entitlements accrue in line with the NES and any applicable award or agreement.

If leave loading applies to your workforce, you can reference it in this section, but make sure you’re not stating a leave loading arrangement that doesn’t apply to your award-covered employees.

4. How To Request Annual Leave

This is one of the most important practical sections. Spell out the process clearly, including:

how requests must be submitted (for example, via your HR system, email, or a form)
who approves leave (direct manager, business owner, HR)
what information should be included (dates, handover plan, contact details if relevant)
how far in advance employees should apply (and what happens for urgent requests)

Tip: If you don’t specify a process, people will make one up - and that’s when inconsistencies start.

5. Notice Periods And Peak Times

Your policy should set expectations around notice. For example, you might require:

at least 2–4 weeks’ notice for planned annual leave
longer notice for leave blocks over a certain length (for example, 2+ weeks)
special rules around peak trading periods (like end-of-financial-year, Christmas, school holidays, product launches)

Be careful with “blackout periods”. You can absolutely manage business needs, but the policy should still allow a fair and reasonable approval process.

6. Approval Criteria (And What Counts As A Reasonable Refusal)

This is where your annual leave policy template becomes genuinely useful for managers.

Common criteria you can include:

minimum staffing levels for safety and operations
customer demand or seasonal peaks
whether the employee has enough accrued leave
whether multiple team members have requested the same dates
whether the leave request would cause unreasonable disruption

You can also set out how you’ll handle competing requests (for example, “first in, first considered”, rotation, business-critical roles, or a mix). Whatever you choose, consistency matters.

If you want a deeper dive on refusal situations, you may also want to align your policy with how you handle requests generally (and ensure managers understand what “reasonable” means in practice), including the approach you take to refusing annual leave.

7. Taking Leave In Advance (Negative Leave Balances)

Some businesses allow employees to take annual leave in advance (creating a negative leave balance). If you allow it, your policy should clearly cover:

when leave in advance will be considered
who can approve it
any limits (for example, only up to 1 week in advance)
what happens if the employee leaves before “earning back” the leave

This is a common risk area if the business doesn’t have a written approach. If you do allow negative balances, it’s worth ensuring the arrangement is consistent with the Fair Work Act, any applicable award or enterprise agreement, and your payroll deductions processes (including obtaining any required written authorisations), and it can be helpful to align it with how you manage negative leave balances.

8. Cashing Out Annual Leave

Cashing out annual leave is not always available, and where it is permitted it must generally meet certain legal conditions (often tied to award or agreement rules). Your policy should only include cashing out if you’ve confirmed it’s allowed for your workforce and you’ll follow the correct process.

For many businesses, it’s safer to include a short statement like: “Cashing out annual leave may be available where permitted by law and any applicable industrial instrument, and subject to written agreement.”

If you do allow cashing out, make sure your HR team understands the guardrails, consistent with cashing out annual leave.

9. Excessive Annual Leave Balances

It’s not uncommon for employees to build up large annual leave balances, especially in busy periods. Your policy can include:

how you identify “excessive” balances (often award-dependent)
how you’ll encourage employees to take leave regularly
whether you can direct an employee to take leave (where legally permitted)
how much notice you’ll give

This helps you manage fatigue risk and reduces the financial liability sitting on your balance sheet.

10. Leave During Shutdown Periods

If your business closes at certain times (for example, a December/January shutdown), your annual leave policy template should address:

how much notice you’ll provide of a shutdown
whether employees will be required to take annual leave
what happens if an employee does not have enough annual leave accrued (for example, whether leave without pay is available by agreement and where permitted, or whether other arrangements apply under an award/enterprise agreement)
how rostering and reopening dates will be handled

Shutdown provisions can be award-specific, so it’s worth checking before you lock this section in.

11. Public Holidays And Annual Leave

A common point of confusion is how public holidays interact with annual leave (especially when public holidays fall during a leave period). Your policy can confirm how your business treats public holidays during approved annual leave, consistent with applicable laws and instruments.

12. Recordkeeping And Payroll Processes

Even a perfect policy won’t help if leave records are inaccurate. Your policy should outline:

how leave balances are tracked (payroll system, HRIS, timesheets)
when leave balances are updated
who employees can contact if they think their balance is wrong

This is also a good place to set expectations about submitting leave requests early enough to ensure payroll is correct.

13. Breaches Of The Policy

Be clear about what happens if someone takes unauthorised leave, doesn’t follow the process, or repeatedly fails to attend work without approval. This should tie into your broader conduct and performance management framework.

Keep this section firm but fair - you’re setting expectations, not trying to “catch people out”.

How To Tailor An Annual Leave Policy Template For Your Business (Without Overcomplicating It)

A template is a starting point, not a finished product. The goal is to tailor your annual leave policy template so it reflects:

your workforce (office, retail, hospitality, professional services, trades)
your operational needs (peak periods, minimum staffing levels)
your legal coverage (NES + applicable award or enterprise agreement)
your internal systems (how requests are made and approved)

Here are the key tailoring points to focus on.

Match The Policy To Your Award And Rostering Reality

If your business is award-covered, award terms can affect things like:

shutdown arrangements
leave loading
how annual leave is taken (for example, requirements around agreement for taking leave)
rules around cashing out leave

This is where many generic online “annual leave policy template Australia” documents fall short - they try to be universal, but awards aren’t universal.

Keep The Process Simple For Managers

If you want the policy used consistently, make it easy. Consider including a short workflow inside the policy, such as:

Employee submits request in writing with required notice.
Manager checks staffing levels and competing requests.
Manager approves or proposes alternative dates within a set timeframe (for example, 5 business days).
Leave is recorded in the HR/payroll system.

Simple steps reduce the risk of “verbal approvals” being misunderstood later.

Set Expectations On Communication And Handover

For knowledge-based businesses (professional services, tech, consulting), the biggest operational issue with leave is often handover, not the leave itself.

Your policy can require employees to:

prepare a handover note for planned leave above a certain length
update project management tools before going on leave
set an out-of-office message and nominate a contact person

This makes annual leave easier to approve, because it’s easier to manage.

Make Sure Your Policy Matches Your Contracts And Other Policies

Your annual leave policy shouldn’t contradict your employment contracts, your workplace policies, or your actual practices.

For example, if your contract says leave must be approved in writing, but your policy suggests verbal approval is fine, you’ve created a grey area. The same goes for shutdown periods, leave in advance, or whether leave can be taken in half-days.

As your business grows, it’s common to formalise a suite of documents and ensure they work together - including contracts, policies, and processes.

How To Roll Out Your Annual Leave Policy So It Actually Gets Followed

Many small businesses create a policy, save it somewhere, and then wonder why managers and staff don’t follow it.

To make your annual leave policy template genuinely useful, treat rollout as a process, not a one-off upload.

Step 1: Decide Where The “Source Of Truth” Lives

Pick one place where the current version is stored - for example, your HR system, intranet, or shared drive - and make sure everyone knows where it is.

Outdated versions floating around are a common cause of confusion.

Step 2: Train Your Managers (Even Briefly)

Your managers are usually the people approving leave. If they don’t understand the policy, the policy won’t be applied consistently.

A short training session can cover:

approval criteria
peak period rules
what “reasonable refusal” looks like under your workplace rules (including any award/enterprise agreement obligations)
how to document approvals

Step 3: Communicate The Policy To Staff Clearly

When you introduce the policy, keep the communication simple:

what’s changing (if anything)
where to find the policy
who to speak to with questions
when it takes effect

If you’re updating an existing policy, consider giving employees a chance to ask questions before it goes live.

Step 4: Apply It Consistently

Consistency is where policies either protect you or create risk.

If you approve leave outside the policy for one person, but refuse the same request for someone else, you may create unnecessary conflict - and potentially raise broader workplace law issues depending on the circumstances.

Step 5: Review It Regularly

Set a calendar reminder to review the policy at least annually, and also whenever you:

change payroll/HR systems
expand into new states
hire a new cohort of employees under a different award
introduce a new shutdown period

Even a short review can prevent your policy becoming “set and forget”.

Common Mistakes Businesses Make With Annual Leave Policies (And How To Avoid Them)

Annual leave seems straightforward - until it isn’t. Here are some common issues we see in small businesses, and how a well-built annual leave policy template can help.

Using A Generic Template That Doesn’t Match Your Award

If your template includes cashing out leave, shutdown directions, or leave loading without checking award rules, you risk creating a policy that’s wrong for your workforce.

A safer approach is to draft the policy around the NES as the baseline, and then tailor the award-sensitive parts carefully.

Not Documenting Approvals (Or Relying On Verbal Approvals)

Verbal approvals can lead to confusion later - especially if a manager leaves, a roster changes, or there’s a dispute about what was said.

Your policy should strongly encourage written requests and written approvals (even if it’s just email or HR system approval).

Unclear Rules On Leave In Advance And Deductions

Leave in advance can be helpful, but you need a clear process. If an employee leaves before they accrue the leave back, payroll deductions can become legally sensitive.

It’s best to align your leave-in-advance approach with your broader payroll and deduction compliance processes, including what you can and can’t do under laws like the Fair Work Act (and how you approach deductions and authorisations generally, such as under section 324 of the Fair Work Act).

Not Managing Excessive Leave Balances

Large leave balances can be a business risk (financially and operationally), and they can also be a wellbeing risk for employees.

Your policy should encourage employees to take leave and explain how you manage excessive balances in a reasonable way.

Policies That Contradict Your Employment Contract

Policies and contracts should be aligned. Your Employment Contract sets the employment relationship, while the policy explains the process.

If they conflict, you create uncertainty - and uncertainty is where disputes thrive.

Key Takeaways

An annual leave policy helps you set clear expectations, apply consistent approval criteria, and reduce disputes as your team grows.
Your annual leave policy template should cover practical processes (requests, notice, approvals) as well as higher-risk areas like shutdowns, leave in advance, and excessive leave balances.
Annual leave entitlements are shaped by the NES and can be affected by awards and enterprise agreements, so avoid using a one-size-fits-all approach.
Rolling out the policy properly (manager training, clear communication, consistent application) is just as important as writing it.
Keeping your policy aligned with your contracts and payroll practices helps prevent administrative errors and legal headaches later.

This article is general information only and does not constitute legal advice. For advice about your specific situation, get in touch with a lawyer.

If you’d like help preparing or updating an annual leave policy template for your business (and making sure it aligns with your contracts and award obligations), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Annual Leave Policy Template: What To Include And How To Use It