Does Long Service Leave Accrue Annual Leave?

If you’re running a business or managing payroll in Australia, you’ll eventually face a common question from employees who reach major milestones: does long service leave accrue annual leave?

It’s a fair question - and the answer has a real impact on staffing, budgeting and employee trust. Getting it wrong can mean underpaying entitlements, payroll corrections and potential disputes. Getting it right keeps things smooth and compliant.

In this guide, we’ll break down how long service leave (LSL) interacts with annual leave under Australian law, highlight state and territory nuances, and share practical steps to set up your systems, contracts and policies so accruals are handled correctly from day one.

Long Service Leave Vs Annual Leave: The Basics

Long service leave is an Australian entitlement that rewards continuous service with the same employer. After a qualifying period (often 7–10 years, depending on your state or territory), an employee becomes entitled to a block of paid leave that recognises loyalty and long tenure.

Annual leave is a separate entitlement under the National Employment Standards (NES). Full-time employees typically accrue four weeks of paid annual leave per year of service, with part-time employees accruing on a pro-rata basis. Annual leave is intended for regular breaks, rest and holidays each year.

Why does the distinction matter? Because whether annual leave accrues while someone is away on LSL turns on how the Fair Work Act treats “service” and accrual during paid leave, and on what state and territory LSL laws say about continuity of service while on LSL.

Does Annual Leave Accrue While You’re On Long Service Leave?

Short answer: in most cases, yes - if the long service leave is paid.

Under the NES, annual leave accrues based on an employee’s ordinary hours of work (see Fair Work Act provisions such as section 87 on accrual and section 22 on “service”). Periods of paid leave generally count as service, which means annual leave continues to accrue during paid LSL unless a specific law, award, enterprise agreement or contract says otherwise.

What does this look like in practice? If a full-time employee takes six weeks of paid long service leave, they continue to accrue annual leave during that period at their usual rate (for most full-time employees, four weeks per year). If they’re part-time, the accrual is pro-rata in line with their ordinary hours.

A Working Example

Let’s say you’re a full-time employee on a 38-hour week in Victoria. You take six weeks of paid LSL. Over those six weeks, you’ll continue accruing annual leave as though you were at work. Practically, that’s roughly six weeks out of 52, so you’d add around 0.46 weeks of annual leave to your balance during your LSL period.

What If Long Service Leave Is Unpaid?

Unpaid leave is different. If an employee takes LSL on an unpaid basis (for example, by agreement where they don’t have enough paid LSL accrued), annual leave generally does not accrue during that unpaid period because it’s not paid, and the time usually doesn’t count as “service” for accrual purposes under the NES. The same principle generally applies to long service leave accrual during unpaid LSL, unless a specific statute or industrial instrument treats the time as service.

Does Long Service Leave Itself Accrue During LSL?

Often, yes - long service leave continues to accrue during periods of paid LSL because employment is ongoing and the period is treated as service under most state and territory LSL laws. However, the precise rules live in the relevant state or territory Act. In some jurisdictions or specific situations, there are exceptions. That’s why it’s important to check the Act that applies to your employee, as well as any modern award or enterprise agreement.

Does Long Service Leave Attract Leave Loading?

Usually no. Leave loading (commonly 17.5%) is an annual leave feature under certain awards or agreements and typically does not apply to LSL unless specifically provided by an award, enterprise agreement or contract. If your team receives leave loading for annual leave, that does not automatically extend to LSL. If you’re weighing up how to handle it in payroll, have a quick look at how annual leave loading works under your award or EA.

State And Territory Nuances To Watch

LSL is primarily governed by state and territory laws, so it’s critical to check the Act that applies to your employee’s workplace. While most jurisdictions treat paid LSL as continuous service (supporting annual leave accrual), differences do exist in qualification periods, how accrual is calculated and how certain absences are treated.

Broad Principles Across Australia

• Paid LSL generally counts as service, so annual leave typically continues to accrue during that period.
• Unpaid LSL generally does not count as service for annual leave accrual, unless a statute or instrument says otherwise.
• Each state and territory has its own rules about qualification periods, pro-rata entitlements on termination and how to calculate the LSL payment rate.

Examples (High Level)

• Victoria: Under the Long Service Leave Act 2018 (Vic), most paid absences, including paid LSL, are treated as service for LSL purposes. In practice, annual leave accrual continues during paid LSL.
• New South Wales: The Long Service Leave Act 1955 (NSW) also treats paid LSL as service, so annual leave will generally keep accruing during paid LSL.
• Queensland and other states/territories: The approach is broadly similar; however, always confirm the local Act and your award/EA for any carve-outs.

Because small differences can change outcomes, it’s wise to sanity-check tricky scenarios (for example, periods of unpaid leave, stand down, or unusual work patterns). When you’re not sure, talking with an employment lawyer can prevent costly back-pay or payroll re-work later.

How Long Service Leave Accrues (With Practical Examples)

Understanding how LSL accrues helps you forecast entitlements and plan coverage. While the details vary by jurisdiction, there are common themes you can rely on.

When Does Accrual Start?

In most states and territories, LSL accrues progressively from the first day of employment. Employees may only be able to take the leave after hitting a minimum service threshold (commonly 7–10 years), but the entitlement builds over time even before that milestone.

Changing Hours Or Work Patterns

If an employee changes from full-time to part-time or vice versa, LSL is typically calculated on a pro-rata basis, often using an average of ordinary hours over a defined period (for example, the last 12 months, five years or the full period of service, depending on the Act). This averaging helps ensure long-serving employees aren’t penalised or overpaid because of changes in recent work patterns.

Paid Vs Unpaid Absences

• Paid absences (for example, paid LSL, annual leave, paid personal/carer’s leave) generally count as service and therefore don’t interrupt accrual.
• Unpaid absences may not count as service, depending on the type of leave and the specific Act. Unpaid parental leave, for instance, commonly doesn’t count towards annual leave accrual.

Payment Rates For LSL

How you pay LSL can depend on the applicable Act. Some laws require you to use the employee’s ordinary pay at the time of taking LSL; others may require an average over a period. If an employee’s hours vary or they receive allowances or commissions, the calculation can be more complex. This is also a good moment to check how you’ll handle any final pay if the employee leaves with unused LSL or annual leave.

Worked Example (Part-Time Employee)

Consider a part-time employee with fluctuating hours over multiple years. Your payroll system should calculate LSL using the averaging method required by your state or territory Act. When they take six weeks of paid LSL, annual leave continues to accrue pro-rata during those six weeks, based on their ordinary hours (as defined in their contract and roster).

If your system can’t handle these averages accurately, you may need a manual check or a payroll rules update to avoid underpayments.

For a deeper dive into how jurisdictions differ and how to run the numbers, it can help to review a comprehensive long service leave overview before you process a substantial entitlement.

Employer Checklist: Getting Accruals Right

Correct accruals rely on three things working together: accurate payroll rules, clear contracts and policies, and an informed team. Use this checklist to stress-test your setup.

1) Payroll Configuration

• Confirm that annual leave accrues during paid LSL and does not accrue during unpaid LSL.
• Set the correct averaging rules for calculating LSL entitlements where required by your state or territory Act.
• Check that leave balances display correctly on payslips (many disputes start when balances don’t match expectations).

2) Contracts And Leave Clauses

• Ensure each Employment Contract clearly describes ordinary hours, leave entitlements, and how leave is requested and approved.
• If you use modern awards or an enterprise agreement, align your contract wording with those instruments and your payroll configuration.
• Be careful about any bespoke clauses that seek to alter accrual - they may be unenforceable if inconsistent with the law.

3) Policies And Processes

• Document your approach to annual leave and LSL in a Staff Handbook or workplace policy, including how accruals work during paid and unpaid leave.
• Explain notice requirements, booking processes, and how you handle extended absences for workforce planning.
• Train managers to avoid making off-the-cuff promises about leave that don’t match the law or your systems.

4) Review Tricky Scenarios Early

• Part-time or variable hours (averaging required).
• Periods of stand down or unpaid absences.
• Transitions between full-time and part-time or vice versa (and the implications for pro-rata accrual and average hours).

It’s easier to solve these before the leave is taken than after. If in doubt, a quick check-in with an employment lawyer can save you time and prevent a dispute.

5) Handle Leave Loading Separately

Annual leave loading does not automatically apply to LSL. Confirm the employee’s award/EA and your contract terms to decide whether any loading is payable. If it only applies to annual leave, make sure your payroll setup doesn’t add it to LSL by mistake. You can revisit how you handle annual leave loading at the same time.

6) Communicate Clearly With Employees

Transparency goes a long way. Before someone takes a long block of LSL, provide a clear estimate of their LSL balance, the rate you’ll pay, whether annual leave will accrue during the period, and what their annual leave balance is expected to be at the end of the LSL. This keeps expectations aligned and reduces stress for everyone.

7) Keep Records In Order

Accurate records of service, hours, pay rates and leave balances are critical. They support your calculations and help you resolve questions quickly. If you make adjustments, record when and why.

8) Align With Related Policies

Accruals don’t exist in a vacuum. Make sure your rules around part-time work, rosters and hours complement your leave settings. If you’re updating hours or employment status, check that your approach to part-time hours and averaging for LSL still makes sense and is implemented correctly in payroll.

Key Takeaways

• Annual leave generally does accrue during paid long service leave in Australia because paid leave counts as service for accrual under the NES (look to the Fair Work Act concepts in sections 87 and 22).
• Unpaid long service leave usually does not attract annual leave accrual because it’s not paid and often doesn’t count as service - check the specific Act or instrument that applies.
• Long service leave itself commonly continues to accrue during periods of paid LSL, but the precise rules are in your state or territory’s LSL Act.
• Set payroll rules carefully: configure accrual during paid LSL, exclude it during unpaid LSL, and apply any averaging required for LSL calculations.
• Back your payroll setup with clear documentation - strong Employment Contracts, a consistent Staff Handbook and team training reduce the risk of disputes.
• Before significant leave, confirm balances and calculations in writing, including whether leave loading applies to that leave type (it usually does not for LSL).
• If the scenario is complex (variable hours, multiple awards, or cross-border issues), get tailored guidance from an employment lawyer early.

If you would like a consultation on your business’s leave entitlements and compliance, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.