Does Leave Accrue While An Employee Is On Leave? Employer’s Guide

If you employ staff in Australia, understanding exactly when leave accrues can save you from payroll errors, disputes and potential Fair Work issues. A common question we hear is: does leave keep building up while someone is on leave?

The short answer is: it depends on the type of leave and whether the time away counts as “service” under the Fair Work Act 2009 (Cth). Paid leave generally counts as service and accrues entitlements. Some unpaid leave does not. And there are a few important exceptions that catch employers out.

Below, we break down accrual rules for annual leave, personal/carer’s leave, parental leave, community service leave, long service leave and workers compensation absences. We’ll also share practical steps to manage accruals confidently in your business.

What Does “Leave Accrue” Mean (And Why Does “Service” Matter)?

For full-time and part-time employees, paid annual leave and paid personal/carer’s leave are minimum entitlements under the National Employment Standards (NES). These entitlements “accrue” over time as the employee completes service with you.

Under the Fair Work Act, whether time away from work accrues leave usually turns on whether that time counts as “service.” Paid leave almost always counts as service. Some unpaid absences also count, while others don’t. If it doesn’t count as service, then leave won’t accrue during that period (unless an award, enterprise agreement or contract gives a more generous benefit).

Casual employees are a different story. They don’t accrue paid annual or paid personal/carer’s leave. Instead, they typically receive a casual loading in their pay to compensate for these entitlements.

Annual Leave Accrual: Paid, Unpaid And Common Scenarios

Annual Leave Continues To Accrue During Most Paid Leave

• Paid annual leave: Annual leave accrues while an employee is on paid annual leave.
• Paid personal/carer’s leave: Annual leave continues to accrue during periods of paid personal or paid carer’s leave.
• Paid compassionate leave and paid family and domestic violence leave: These paid absences count as service, so annual leave accrues while the employee is away.
• Paid community service leave (e.g. jury service make-up pay where applicable): If the absence is paid and counts as service, annual leave accrues.

Because these absences count as service, their leave balances should continue to grow in your payroll system. While you’re reviewing your settings, it’s also worth checking how your system handles annual leave loading if this applies under an award or agreement.

Unpaid Leave And When Accrual Pauses

As a general rule, annual leave does not accrue during unpaid absences, unless the time still counts as service under the Fair Work Act or a more generous instrument applies.

• Unpaid leave: No accrual in most cases because it doesn’t count as service.
• Unpaid parental leave: No accrual under the NES. Employer “top-up” payments that simply provide extra money during unpaid parental leave won’t change this unless your policy or contract expressly provides a period of employer-paid leave that counts as service.
• Unpaid carer’s leave: No accrual during the unpaid period.

Important exception: community service leave (such as jury service) counts as service even when unpaid, so annual leave continues to accrue. This trips up a lot of employers because the time away might be unpaid from you, but the law still treats it as service.

Public Holidays While On Leave

If a public holiday falls during paid annual leave, it doesn’t come off the employee’s annual leave balance (they’re effectively paid for the public holiday, and the annual leave day is not deducted). Accrual continues in the usual way, because the period remains paid and counts as service.

Personal/Carer’s Leave, Community Service Leave And Other NES Leave Types

Does Personal/Carer’s Leave Accrue While On Leave?

• During paid personal/carer’s leave: Yes, personal/carer’s leave continues to accrue because the absence counts as service.
• During paid annual leave: Yes, personal/carer’s leave still accrues while an employee is on paid annual leave.
• During unpaid leave (including unpaid parental leave): No, personal/carer’s leave does not accrue during these periods unless a more generous instrument applies.

If you’re managing a longer illness absence and paid entitlements run out, it’s wise to review your obligations around medical evidence, reasonable adjustments and safety. Our guide to managing employee sick leave when entitlements run out steps through the key issues.

Community Service Leave (Including Jury Duty)

Time away on community service leave counts as service under the Fair Work Act, which means annual leave and personal/carer’s leave continue to accrue even if the period is unpaid. Where there is an entitlement to “make-up pay” (for example under an award or agreement during jury service), this doesn’t change the underlying rule: the time still counts as service, so accruals keep ticking over.

Compassionate Leave And Family & Domestic Violence Leave

Compassionate leave is paid for non-casuals and counts as service, so leave accrues during these absences. The NES also provides paid family and domestic violence leave for eligible employees; this is paid time and counts as service, so accruals continue as normal while the employee is away.

Parental Leave: Paid Vs Unpaid, And Employer “Top-Ups”

Parental leave can be confusing because there are two systems at play: the NES (unpaid parental leave) and the Australian Government’s Paid Parental Leave Scheme (usually paid by Services Australia, not the employer).

Unpaid Parental Leave Under The NES

Time on unpaid parental leave does not accrue annual leave or personal/carer’s leave. This is a hard rule under the NES, even if the employee is receiving government-funded parental leave payments.

Government-Funded Paid Parental Leave

Payments from the Government’s scheme are not employer-paid leave. From the employer’s perspective, the employee is still on unpaid parental leave under the NES, so leave does not accrue during that period.

Employer “Top-Ups” And Contractual Paid Parental Leave

Some employers offer their own paid parental leave benefits. If your policy or contract provides a distinct period of employer-paid leave (separate from unpaid parental leave), that employer-paid period can count as service and accruals will continue for that period.

However, simply “topping up” an employee’s income while they are on unpaid parental leave won’t change the NES treatment. If you want a period to count as paid leave (and therefore accrue entitlements), structure it clearly in your policy or contract as employer-paid parental leave that counts as service. This is a great time to review your Parental Leave Policy so managers and employees know exactly what applies.

Workers Compensation And Long Service Leave

Workers Compensation Absences

If an employee is away from work due to a work-related injury and receiving workers compensation payments, whether leave accrues can depend on your state or territory’s workers compensation laws and how the absence is classified. In some jurisdictions, certain workers compensation absences may count as service for annual leave accrual, while others won’t.

Because this area is technical and varies by location and circumstances, check the relevant state or territory scheme and any applicable award or agreement. If you’re handling a longer workers compensation absence, consider getting tailored advice from an employment lawyer before you finalise payroll settings or communicate balances.

Long Service Leave (State And Territory Based)

Long service leave is governed by state and territory legislation, and accrual rules differ by jurisdiction. As a general guide, long service leave continues to accrue during most periods of paid leave. Treatment of unpaid absences (including unpaid parental leave) varies and is set by the relevant Act, so always check the legislation that applies to your employee’s work location.

Practical Steps To Manage Leave Accruals (And Avoid Disputes)

1) Lock In Clear Employment Contracts

Start by making sure each employee’s contract sets out their leave entitlements and references the NES and any applicable award or enterprise agreement. A clear, modern Employment Contract helps everyone understand what’s paid, what accrues and when, and avoids mismatched expectations.

2) Update Your Policies And Staff Handbook

Written policies are your day-to-day guideposts. Record how leave is requested, how evidence is handled, and the position on accruals during different absences (including community service leave and parental leave). If you don’t have one, consider a Staff Handbook or a tailored workplace policy suite that matches your industry and awards.

3) Configure Payroll Correctly

Map each leave type in your payroll system to the correct accrual rule. The common pitfalls are:

• Accruing annual leave during unpaid parental leave (should be off by default).
• Not accruing annual leave during community service leave (should remain on, because it counts as service even if unpaid).
• Failing to treat paid family and domestic violence leave as a paid absence that counts as service.

Do periodic audits so any award updates or system changes don’t quietly create underpayments or overpayments.

4) Communicate Early And In Writing

Before longer absences start, confirm in writing how the period will be treated. This is especially useful for parental leave, workers compensation absences and extended personal leave. Clear communications reduce stress for the employee and prevent disputes later about balances or pay.

5) Train Managers On Evidence And Process

Front-line managers should know when to ask for medical evidence, when to consider reasonable adjustments, and how to escalate complex cases. Where workloads fluctuate, you might also explore flexible arrangements like time off in lieu in compliance with awards or agreements.

6) Keep An Eye On Related Entitlements

Accruals interact with other entitlements. For example, you may need to factor annual leave balances and loading into final pay calculations at the end of employment, and ensure you’ve applied the correct rules if an employee takes leave close to resignation or redundancy. If you’re unsure, get advice before processing complex leave or termination scenarios.

Common Mistakes To Avoid

• Assuming pay status always determines accruals: Community service leave often counts as service even when unpaid, so accruals continue.
• Relying on a “top-up” to make unpaid parental leave accrue: NES accrual rules don’t change unless you provide a distinct employer-paid leave period that counts as service.
• Ignoring award or agreement variations: Industry instruments may provide additional benefits or evidence rules you must follow.
• Leaving policies vague: Without a clear policy, managers take different approaches and employees receive inconsistent treatment.
• Letting systems drift: Payroll settings and leave categories can change with software updates or new awards - schedule regular checks.

A little structure goes a long way. Clear contracts and policies, backed by a configured payroll system, remove most of the friction.

Key Takeaways

• Paid absences that count as service (like paid annual leave, paid personal/carer’s leave, paid compassionate leave and paid family and domestic violence leave) generally accrue annual leave and personal/carer’s leave as normal.
• Unpaid parental leave under the NES does not accrue leave. Government-funded parental leave payments don’t change that from the employer’s perspective.
• Community service leave counts as service even when unpaid, so annual leave and personal/carer’s leave continue to accrue during these absences.
• Workers compensation and long service leave accruals can vary by state or territory and by instrument - check the local scheme and any applicable award or agreement.
• Document your approach with a clear Employment Contract, a practical Parental Leave Policy and a current Staff Handbook, and make sure your payroll system mirrors the legal rules.
• Train managers to handle evidence, process and communication confidently, and seek legal advice on complex or unusual scenarios before you finalise payroll.

If you’d like a consultation about leave accruals and managing employee entitlements in your workplace, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.