Two Rulebooks, One Payroll
You have a new employee starting, a business purchase to settle, or a termination payment to prepare, and the question you are actually asking is a numbers question: how much annual leave has this person accrued, and do they have a long service leave entitlement on top of it? The figures do not come from one place. Paid annual leave is a federal entitlement under the National Employment Standards (the NES) in the Fair Work Act 2009 (Cth) (Fair Work Act), which covers most private sector employees across Australia. Long service leave is governed instead by the long service leave legislation of the state or territory where the employee works, and both the qualifying period and the rate differ between jurisdictions.
That split is the first thing to fix in your head, because it determines every number that follows. Annual leave accrues continuously from the first day of employment and must be paid out when employment ends. Long service leave is a separate, state-based entitlement that an employee unlocks only after a long period of continuous service with the same employer, or with the business if you have bought it. This article sets out the rates, the thresholds and worked calculations for both, and flags where the figures stop being straightforward.
Annual Leave Under the NES: The Figures
Under s 87 of the Fair Work Act, full-time and part-time employees are entitled to four weeks of paid annual leave for each year of service. The entitlement accrues progressively during the year according to the employee's ordinary hours of work and accumulates from year to year, so unused leave rolls over rather than lapsing. For a full-time employee on the standard 38-hour week, that works out to 152 hours per year, or 2.923 hours for each week of service. Part-time employees accrue at the same rate relative to their own ordinary hours: an employee working 20 hours per week accrues 80 hours per year, which is four weeks of their working time.
| Employee type | Annual leave under the NES | Notes |
|---|---|---|
| Full-time | 4 weeks per year | 152 hours per year on a 38-hour week |
| Part-time | 4 weeks of their ordinary hours per year | accrues pro rata on hours worked |
| Shiftworker | 5 weeks per year | only if the applicable award or enterprise agreement defines them as a shiftworker for NES purposes (s 87(1)(b)) |
| Casual | No paid annual leave under the NES | casual periods do not count toward the entitlement; the casual loading is intended to compensate instead |
A few features of the accrual matter in practice. Annual leave starts accruing on the employee's first day, even during a probation period. The Fair Work Ombudsman confirms that employees keep accruing annual leave while on paid leave, including paid annual leave, paid personal or carer's leave, community service leave and long service leave, but they do not accrue while on unpaid leave such as unpaid parental leave. When an employee takes annual leave, s 90 requires you to pay them at their base rate of pay for their ordinary hours in the period. When employment ends, you must pay out any accrued but untaken annual leave at the amount that would have been payable had they taken the leave: the base rate for the ordinary hours.
The NES is a floor, not a ceiling. A modern award or enterprise agreement can give more annual leave, and awards commonly add a leave loading on top of the base rate, but neither can give less than the NES. Cashing out annual leave is possible only under an award or agreement term, or by written agreement for award-free employees, and the balance cannot be reduced below four weeks (ss 93-94).
Long Service Leave: The State Figures
In New South Wales, long service leave comes from the Long Service Leave Act 1955 (NSW) (the NSW Act). Every worker is entitled to long service leave on ordinary pay in respect of their service with an employer (s 4(1)). After ten years of service the entitlement is two months, which the NSW Act defines as 8.667 weeks because a month is four and one-third weeks (s 4(a3)). For each further five years of service, another month is added. In practical terms the entitlement accrues at 0.8667 weeks per year of service: twelve years earns about 10.4 weeks, and fifteen years earns the full three months, or 13 weeks.
The pro-rata rules matter on termination. An employee with at least five years of service is entitled to a proportionate amount on the basis of two months per ten years if the employer terminates their employment for any reason other than serious and wilful misconduct, or if the employee leaves on account of illness, incapacity or domestic or other pressing necessity, or dies (s 4(2)(a)(iii)). An employee who has completed ten years is entitled to a proportionate amount on the basis of three months per fifteen years if their services end for any reason (s 4(2)(a)(ii)). If employment ends and long service leave is still owing, the employee is taken to have started the leave on the termination date and you must pay their ordinary pay in full, less anything already paid for that leave (s 4(5)(a)). If the employee has died, you must pay the same amount to their personal representative on request (s 4(5)(b)).
Victoria's scheme runs differently. Under s 6 of the Long Service Leave Act 2018 (Vic), an employee qualifies after just seven years of continuous employment and accrues at one sixtieth of their total period of continuous employment. At seven years that is about six weeks of leave; at fifteen years it reaches 13 weeks. The other states and territories each set their own qualifying period, generally between seven and ten years, with rates that vary, so the figure for your employees depends on where they work, not where your business is registered.
| Jurisdiction | Qualifying period | Entitlement | Source |
|---|---|---|---|
| NSW | 10 years | 2 months (8.667 weeks), plus 1 month per further 5 years | s 4, Long Service Leave Act 1955 (NSW) |
| Victoria | 7 years | 1/60th of continuous employment (about 6 weeks at 7 years) | s 6, Long Service Leave Act 2018 (Vic) |
| Other states and territories | Generally 7-10 years | Set by the relevant Act; rates vary | Check the applicable state or territory legislation |
Two further wrinkles can displace the state figures entirely. The Fair Work Ombudsman notes that a federal pre-modern award that covered the employer and employee before 1 January 2010 can supply the long service leave entitlement instead of the state Act, and enterprise agreements made from 2010 can include their own long service leave terms. Employees in industries with portable long service leave schemes, such as building and construction, contract cleaning, community services, security and coal mining, accrue through a central fund that follows them across employers, so the state Act may not be the operative source for them.
Worked Calculations
Here is how each figure is calculated:
- Annual leave payout on termination: Take a full-time employee on a 38-hour week at $32 per hour who has worked for two years and taken one week of annual leave in each year. They have accrued 152 hours per year, or 304 hours across the two years. They have taken two weeks, or 76 hours, leaving 228 hours accrued. At $32 per hour that is $7,296 to pay out when employment ends, before any leave loading your award adds.
- NSW long service leave: An employee with 12 years of continuous service and ordinary weekly pay of $1,600 is entitled to 12 years at 0.8667 weeks per year, which is 10.4 weeks. At $1,600 per week that is $16,640, less any long service leave already taken. The same employee at 15 years would be entitled to the full 13 weeks, or $20,800.
- Victoria long service leave: An employee in Victoria with nine years of continuous employment has 468 weeks of service, and one sixtieth of that is 7.8 weeks of leave. If their ordinary weekly pay is $1,600, the entitlement is $12,480.
Edge Cases That Change the Figure
The following situations change the figures above:
- Unpaid leave and unauthorised absences: these do not count toward annual leave accrual or toward long service qualifying service, but under both regimes they do not break the continuity of service (s 22(2)-(3) of the Fair Work Act; s 4(11)(a1) of the NSW Act). An employee who takes six months of unpaid leave keeps their continuity but their entitlement date moves.
- Business purchases and transfers: if you bought the business, the employee's prior service with the previous owner counts for long service leave purposes (s 4(11)(c) of the NSW Act), and service with related corporations is also preserved (s 4(13)). Under s 91 of the Fair Work Act, where service carries over in a transfer of employment, the annual leave entitlement is not paid out on the transfer; it transfers with the employee.
- Casual employees: casuals have no paid annual leave under the NES, but their casual service does count toward long service leave in NSW (s 4(11)(a)), and some other states also include long-serving casuals.
- Awards and agreements: they cannot reduce NES annual leave below four weeks, but a pre-modern award can replace a state long service leave scheme, and an enterprise agreement can set its own long service leave terms, so always check what instrument actually covers the employee before you quote a figure.
When You Need a Lawyer to Confirm the Figures
A single worked calculation is easy. The correct figure across a real workforce often is not, because you need to reconstruct each employee's service history, decide which state's Act applies to them, and identify every award, agreement or portable scheme term that overrides the default figures. An employment lawyer can work through mixed service across multiple employers and related entities, confirm whether a transfer of business carries entitlements across, calculate pro-rata long service leave on termination (including payments to a deceased employee's estate), and draft the leave clauses in your employment contracts and policies so the figures you owe are clear from the start. The Fair Work Ombudsman's online leave and pay calculator is a useful first pass for annual leave, but it does not resolve state long service leave questions or instrument overrides.
The 8.667 Weeks Trap
The single error most likely to make you quote the wrong number is treating "two months for ten years" as though the rate were 8.667 weeks per year. It is 8.667 weeks per ten years, or 0.8667 weeks per year of service, and multiplying 12 years by 8.667 instead of 0.8667 inflates the entitlement tenfold. The second error is assuming one national rule: quote a NSW figure for a Victorian employee and you will be both too late, because they qualify at seven years, and miscalculated, because their accrual runs at one sixtieth of service. Get the source of the entitlement and the annualised rate right, and the rest is arithmetic.
Annual leave is a federal NES entitlement of four weeks per year for full-time employees, pro rata for part-time employees, accruing on ordinary hours and paid out at the base rate on termination. Long service leave is a state question: in NSW, two months after ten years plus a month per further five years, and in Victoria, one sixtieth of service after seven years. Unpaid leave does not accrue leave but does not break continuity, transfers of business usually carry service with them, and awards, agreements and portable schemes can change every figure in this article. When your workforce spans more than one of those variables, that is the point at which a lawyer earns their fee.