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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Paying holiday pay correctly isn’t just good practice - it’s a legal requirement for Australian employers. Between annual leave accrual, leave loading and public holiday rules, it can feel complex when you’re trying to run payroll without a hitch.
The good news is that once you understand the moving parts, calculating holiday pay becomes a straightforward, repeatable process. It also builds trust with your team, keeps you compliant with workplace laws and reduces the risk of backpay claims.
In this guide, we’ll walk through how holiday pay (annual leave pay) is calculated in Australia, a simple step‑by‑step method you can follow, the key compliance items to get right, and the documents that help keep your business protected.
What Is Holiday Pay?
Holiday pay, also called annual leave pay, is the pay an employee receives when taking paid annual leave under the National Employment Standards (NES). Full-time and part‑time employees generally accrue at least four weeks of paid annual leave per year (more for certain shift workers, depending on the award or agreement).
Casual employees do not receive paid annual leave, as their casual rate includes a loading to compensate for this. It’s important to confirm an employee’s status before you calculate any leave entitlements.
How Is Holiday Pay Calculated In Australia?
As a starting point, employees are paid their base rate of pay for the ordinary hours they would have worked during the leave period. In most cases, this excludes overtime, penalties and certain allowances (unless an award, enterprise agreement or contract requires them to be included).
In some industries or under some awards or enterprise agreements, employees may also be entitled to an additional amount known as annual leave loading. This is often 17.5% of base pay for the period of annual leave, but the percentage can vary or may not apply at all. Always check the instrument that covers the employee - leave loading is common in many sectors, but it’s not universal.
If you’re weighing up whether leave loading applies in your workplace, it helps to read a plain‑English overview of annual leave loading before you set your process.
Step-By-Step: Calculating Holiday Pay
1) Confirm Employment Type And Coverage
Identify whether the employee is full‑time, part‑time or casual, and what instrument covers them (award, enterprise agreement or an individual contract). Full‑time and part‑time employees accrue paid annual leave, while casuals do not.
2) Work Out Ordinary Hours For The Leave Period
- Full‑time example: A full‑time employee who works 38 ordinary hours per week and takes two weeks of leave would be paid for 76 ordinary hours.
- Part‑time example: A part‑timer who regularly works 20 ordinary hours per week and takes one week of leave would be paid for 20 ordinary hours.
3) Apply The Base Rate Of Pay
Multiply the total ordinary hours on leave by the employee’s base hourly rate.
Example: If your employee earns $30 per hour and takes two weeks (76 hours) of leave, base holiday pay = 76 × $30 = $2,280 (gross, before tax).
4) Add Annual Leave Loading (If It Applies)
If an award, enterprise agreement or contract provides annual leave loading, calculate it on the employee’s base pay for the leave period and add it to the total.
Example (continuing the numbers above): Leave loading at 17.5% of $2,280 = $399. Total gross holiday pay = $2,280 + $399 = $2,679.
Tip: Some instruments specify a different percentage or special rules for shift workers. Always rely on the wording that applies to the employee.
5) Check Whether Any Other Amounts Must Be Included
Some awards or agreements may require other components (e.g. certain allowances) to be included while on annual leave. Others specifically exclude overtime or penalties during leave. Double‑check the relevant instrument and the individual’s Employment Contract to ensure you’re applying the right inclusions and exclusions.
6) Adjust For Public Holidays That Fall During Leave
If a public holiday falls during a period of annual leave, the day is treated as a public holiday (not a day of annual leave). In practical terms, you should:
- Pay the employee for the public holiday as you normally would; and
- Not deduct that public holiday from their annual leave balance.
Make sure your payroll system can correctly recognise public holidays so you don’t accidentally reduce a leave balance or underpay the day.
Compliance Essentials: Super, Tax, Public Holidays And Records
Superannuation On Holiday Pay And Leave Loading
Superannuation is generally payable on ordinary time earnings (OTE). Annual leave payments are typically part of OTE. Whether leave loading is OTE can depend on the purpose and how it’s set under the relevant instrument. Many employers treat leave loading as OTE and pay super on it; however, you should confirm your position with your payroll adviser or accountant and document your approach in case of review. A quick refresher on what counts as ordinary time earnings can help you set up super correctly.
Tax And Withholding
Holiday pay (including any leave loading that’s paid) is subject to PAYG withholding and should appear on payslips and end‑of‑year income statements as salary or wages. This information is general in nature - for tax specifics, it’s best to seek advice from your accountant or payroll provider.
Public Holidays While On Leave
As noted above, public holidays during a period of annual leave are not deducted from the employee’s annual leave balance. The employee should be paid for the public holiday in line with the applicable award, agreement or contract. This small adjustment is easy to miss and is a common driver of underpayment complaints, so it’s worth automating in your payroll process wherever possible.
Record‑Keeping: How Long Should You Keep Records?
Employers must keep certain employment records (including time worked, leave accrual and leave taken, and pay details) for at least seven years to meet workplace law requirements. Separately, the ATO generally requires records relevant to tax to be kept for five years. If in doubt, keep the full set of payroll and leave records for at least seven years - and make sure they are secure, accurate and easy to retrieve.
Because payroll and leave data is personal information, you should also have a clear and accessible Privacy Policy and ensure the way you store and use employee information meets your privacy obligations.
Documents And Processes To Put In Place
Putting the right documents and processes in place makes calculating holiday pay far easier - and reduces your legal risk.
Employment Agreements
Every employee should have a clear, up‑to‑date Employment Contract (or, for casuals, a Casual Employment Contract). These documents should spell out classification, base rate, ordinary hours, any applicable allowances and how annual leave and (if relevant) leave loading are treated alongside the applicable award or enterprise agreement.
Workplace Policies And Processes
It’s helpful to set out how annual leave is requested, approved and recorded in your leave policy or Staff Handbook. This gives your team a consistent process, reduces admin back‑and‑forth and helps you avoid errors (e.g. when a public holiday falls within a leave period).
Payslips And Payroll Records
Payslips should show ordinary hours, leave taken and any leave loading paid in the period. Keep robust records that reconcile leave accrual and balances, and make sure changes to an employee’s rate or classification flow through before leave is taken. This is often where underpayments occur - not because the rules are misunderstood, but because rate changes weren’t applied in time.
Termination Scenarios
On termination, you must pay out any accrued but unused annual leave, including any applicable leave loading required by the relevant instrument. If you’re calculating a final payout, a helpful reference on calculating final pay can keep you on track (note that awards and agreements may add extra requirements).
System Settings And Double‑Checks
- Configure your payroll system to apply leave loading only where it actually applies - not to every employee by default.
- Map public holidays in each relevant state or territory so leave balances aren’t reduced on those days.
- Set calendar reminders to recheck award rates and classifications each time they change.
If you operate across multiple awards, create a master reference so you can quickly see who gets leave loading, at what percentage and under which conditions. A short internal guide can save time and ensure consistency during payroll runs and audits.
When To Get Help
If you’re unsure whether a payment should be included while an employee is on leave, or how an award clause applies to your roster patterns, it’s worth getting tailored guidance early. A small clarification now can save a costly remediation later.
Key Takeaways
- Holiday pay for full‑time and part‑time employees is based on their base rate applied to the ordinary hours they would have worked during the leave period.
- Annual leave loading is common in many awards but not universal - check the relevant instrument and, if applicable, calculate it on top of base pay for the leave period. If you need a refresher, start with annual leave loading.
- If a public holiday falls during annual leave, it should be paid as a public holiday and not deducted from the employee’s leave balance.
- Superannuation is generally payable on annual leave and may also apply to leave loading depending on whether it counts as ordinary time earnings - confirm your approach with your payroll adviser and document it.
- Keep accurate records: workplace law requires employment records to be kept for at least seven years, while most tax records are generally kept for five years.
- Clear documents and processes reduce risk: use a tailored Employment Contract, a practical Staff Handbook and a compliant Privacy Policy to support your payroll and leave workflows.
- On termination, pay out unused annual leave (and any applicable loading) - a quick check against your award and a guide to final pay calculations can help prevent mistakes.
If you’d like a consultation on how to calculate holiday pay or to review your employment contracts and leave policies, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
