Leave is one of the most common sources of payroll errors in Australian businesses, due to the sheer complexity.
When you’re juggling multiple awards, EBAs with enhanced provisions, shift worker entitlements, and leave loading calculations that vary by circumstance, even experienced payroll teams struggle to get it right every time.
The consequences? Fair Work recovered $473 million for nearly 160,000 underpaid workers in 2023-24. And here’s the kicker — it’s not just underpayments. Tracy Angwin, CEO of the Australian Payroll Association, noted that in 70% of compliance audits, they find overpayments.
Both cost you money. Both erode trust. Both indicate your payroll system isn’t working the way it should.
Key Takeaways
- Leave entitlements come from the National Employment Standards (NES), modern awards, and EBAs — each adds complexity
- Leave loading (typically 17.5%) is one of the most commonly miscalculated components
- Common errors include wrong accrual rates, missing leave loading, incorrect part-time calculations, and botched termination payouts
- Construction and industrial sectors face extra complexity with CFMEU EBAs and portable leave schemes
- The right payroll software automates award interpretation and prevents these errors
Understanding Leave Entitlements Under Australian Law
The Australian leave system operates in layers. There are the baseline NES requirements, then modern awards that often exceed those minimums, and potentially an enterprise agreement on top with even better conditions.
While it’s a feature designed to protect workers, it can be a compliance minefield for payroll managers.
National Employment Standards (NES)
The NES provides 11 minimum entitlements that apply to all employees in the national workplace relations system. Think of it as the floor, not the ceiling.
Leave types covered by the NES include annual leave (four weeks for full-time employees), personal/carer’s leave (sick leave), compassionate leave, parental leave, community service leave, long service leave, and public holidays.
Here’s the catch: awards and EBAs can (and often do) provide more than the NES minimum. They can’t provide less, but they routinely provide more.
How Awards and EBAs Add Complexity
Modern awards may grant additional leave or use different calculation methods entirely. Enterprise agreements, particularly in construction where CFMEU EBAs dominate, often have enhanced leave provisions that go well beyond the standard entitlements.
For construction businesses, this means identifying which instrument applies to which employee, then calculating correctly based on that specific framework. A labourer covered by the Building and Construction General On-site Award has different entitlements than an office admin covered by the Clerks Award.
The challenge isn’t knowing leave exists. It’s knowing exactly how much each person should accrue, when they can access it, and how much they should be paid when they take it.
Leave types you’ll need to manage include annual leave (including leave loading), personal/carer’s leave, compassionate/bereavement leave, long service leave (state-based), community service leave, unpaid parental leave, and time in lieu (TOIL) arrangements.
Annual Leave: Accrual, Calculation and Common Errors
Annual leave seems straightforward until you actually try to calculate it correctly for a workforce with varying employment types, working patterns, and award coverage.
How Much Annual Leave Per Year?
The NES provides four weeks (20 days) of paid annual leave for full-time employees. Shift workers under many awards get five weeks. Part-time employees receive pro rata entitlements based on their ordinary hours.
That “shift worker” distinction matters more than you’d think. The definition varies by award, and incorrectly classifying someone means you’re either underpaying (compliance risk) or overpaying (recovery headache).
Annual Leave Accrual Rate
The standard accrual rate for a full-time employee working a 38-hour week is 2.923 hours per week. That works out to roughly 0.07692 weeks per week worked — or to put it another way, 4 weeks divided by 52 weeks.
Leave accrues during paid leave, public holidays, and other paid absences. It doesn’t accrue during unpaid leave or, in some cases, while an employee is on workers’ compensation (this varies by state and award).
Getting the accrual rate wrong compounds over time. An error of a few decimal points might seem trivial in week one. By year three, you’ve got a material underpayment.
How to Calculate Annual Leave
For a standard 38-hour-per-week employee:
- Ordinary hours worked per week: 38
- Accrual factor: 4 weeks ÷ 52 weeks = 0.07692
- Weekly accrual: 38 × 0.07692 = 2.923 hours
Each week that this employee works, they accrue roughly 2.923 hours of annual leave, or approximately 152 hours per year.
Shift Workers and Additional Annual Leave
Some awards offer five weeks of annual leave for shift workers, rather than the standard four weeks. But “shift worker” doesn’t just mean “works shifts” — it has a specific definition in each award.
Under many awards, a shift worker is someone who works for a business that operates 24/7 and regularly works on Sundays and public holidays as part of their roster.
Miss this classification? You’ve underpaid someone by an entire week of leave per year. Find it too late? You’re backpaying years of accrued entitlements plus the loading.
What Is Leave Loading?
Leave loading is the payment that causes more payroll confusion than almost any other component. It’s not universal, it’s not always 17.5%, and it’s definitely not straightforward when penalty rates are factored in.
Leave Loading Meaning and Purpose
Leave loading is an additional payment (usually 17.5% of your base pay) paid in addition to your regular wage when you take annual leave. It originated in the 1970s as compensation for workers who regularly earned overtime and penalty rates during normal work periods.
The logic: if you’re a shift worker who routinely earns weekend penalties and overtime, taking annual leave means you lose that additional income. Leave loading helps offset that loss.
How Much Is Leave Loading?
The standard rate is 17.5%. But not always.
Some awards require comparing 17.5% of base pay against the average penalties and shift loadings the employee would have earned during the leave period — then paying whichever is greater.
This “comparison method” is common in construction awards. An employee regularly working weekends at penalty rates might be entitled to those penalties as their “leave loading” instead of the flat 17.5%, if it works out to be more.
How to Calculate Leave Loading
For standard 17.5% leave loading:
- Base pay for leave period × 17.5% = leave loading amount
Example: An employee earning $1,500 per week in base pay takes two weeks of leave.
- Leave pay: $3,000 (2 weeks × $1,500)
- Leave loading: $3,000 × 17.5% = $525
- Total payment: $3,525
What gets included in “base pay” for this calculation? Usually just the base hourly rate multiplied by ordinary hours — not penalties, allowances, or overtime.
Who Is Entitled to Annual Leave Loading?
Full-time and part-time employees covered by relevant awards are typically entitled to leave loading. Award-free employees only receive it if their employment contract specifically includes it.
Casuals don’t accrue annual leave, so they don’t receive leave loading — the 25% casual loading is meant to compensate for not receiving leave entitlements.
Common leave loading errors include not paying it at all when the award requires it, paying 17.5% when the award requires a comparison with penalty rates, including or excluding wrong components from the base pay calculation, and forgetting to include leave loading on termination payouts.
Personal Leave and Sick Leave
Personal leave replaced the old “sick leave” terminology to better reflect its dual purpose — covering both personal illness and caring responsibilities.
Personal leave covers time off when you’re sick or injured, and when you need to care for an immediate family or household member who’s sick or injured.
The NES entitlement is 10 days per year for full-time employees. That’s 76 hours for someone working a standard 38-hour week. Part-time employees get pro rata entitlements based on their ordinary hours.
Personal Leave vs Annual Leave
The key differences matter for payroll:
Personal leave doesn’t get paid out on termination (unless the award or agreement specifically says otherwise, which is rare). Annual leave must be paid out.
Personal leave accumulates year to year with no cap under the NES. You can’t “lose” unused personal leave at year-end — it rolls over. Annual leave also rolls over, but excessive accrual can trigger employer action in some cases.
How Much Sick Leave Per Year?
Ten days per year for full-time employees. The accrual rate is 1/26 of ordinary hours per fortnight, which works out to approximately 0.7692 hours per week for a 38-hour-per-week employee.
Part-time employees accrue proportionally. Someone working 25 hours per week accrues roughly 0.507 hours of personal leave per week (25 ÷ 38 × 0.7692).
Personal Carers Leave
Personal/carer’s leave comes from the same entitlement pool. An employee with 50 hours of personal leave can use it for their own illness or to care for a family member — it’s the same bucket.
Employers can request evidence for personal leave (medical certificate, statutory declaration), and the requirements for evidence are the same whether it’s personal illness or carer’s leave.
The most common personal leave errors? Paying it out on termination when it shouldn’t be, calculating wrong accrual rates for part-time employees, and treating personal leave as if it has an annual cap instead of accumulating year-to-year.
Compassionate Leave and Bereavement Leave
Compassionate leave (sometimes called bereavement leave) is often overlooked in payroll setup until someone needs it, which is exactly when you don’t want to be figuring out entitlements.
The NES provides two days of paid compassionate leave per occasion for permanent employees (it’s unpaid for casuals, but they’re still entitled to the time off).
Triggers include death or life-threatening illness or injury of an immediate family member or household member. Note: it’s not restricted to death. A parent diagnosed with terminal cancer or a partner in ICU after an accident both qualify.
Long Service Leave
Long service leave is where state-based complexity enters the picture. Unlike other leave types governed by federal law, long service leave is managed by state and territory legislation.
Long service leave rewards employees for their lengthy and continuous service with the same employer (or, in some industries, within the same sector). Generally, employees receive about two months (8.67 weeks) after 10 years of service.
The specific entitlement varies by state, as does the timing of when employees can access pro rata long service leave if they leave before 10 years.
Portable Long Service Leave in Construction
Construction industry businesses need to understand portable long service leave schemes, where entitlements follow the employee between employers rather than starting fresh with each company.
Victoria has CoINVEST, Queensland has QLeave, and NSW has the Long Service Corporation. If you’re running construction projects, you’re likely required to register and make contributions to these portable schemes.
Leave Payments on Termination
Termination pay calculations are where overpayments and underpayments often reveal themselves — usually when the employee (or their lawyer) runs the numbers.
Final Pay and Accrued Leave
All accrued but untaken annual leave must be paid on termination. This includes leave loading if the employee was entitled to it during employment. Personal leave is not paid out on termination (unless the award or agreement specifically provides for it, which is uncommon).
Long service leave payout depends on the state legislation and the circumstances of termination — whether the employee resigned, was made redundant, or was dismissed, and whether they’d reached the relevant pro rata threshold.
Redundancy Pay and Leave
Redundancy pay under the NES is separate from leave entitlements. It’s calculated based on years of continuous service and is in addition to any leave payouts.
There’s a small business exemption — businesses with fewer than 15 employees aren’t required to pay redundancy. But leave entitlements still apply regardless of business size.
Don’t confuse the two payments or assume leave loading doesn’t apply because it’s a redundancy situation. Leave entitlements are independent of redundancy calculations.
Leave Taken in Advance
If an employee took more annual leave than they’d actually accrued (leave in advance), and then terminates employment, you may be able to recover the overpayment.
Check the award for provisions allowing recovery. Get written agreement if possible. The Fair Work Act has strict rules about deductions from pay, so tread carefully and ideally get legal advice before deducting.
Common Leave Calculation Errors That Cause Overpayments and Underpayments
Understanding the theory is one thing. Implementing it correctly across hundreds of employees with different awards, employment types, and working patterns is where theory meets reality.
Leave Loading Errors
The “not paying it at all” error is surprisingly common. Someone sets up the payroll system, focuses on getting hourly rates and penalties right, and completely misses that the award requires 17.5% leave loading on annual leave.
Accrual Errors
Using the wrong accrual rate compounds rapidly. You’re 0.2 hours per week off in your calculation. Times 52 weeks. Times multiple years. Times multiple employees. Suddenly, you’ve got a material compliance issue.
Not adjusting for part-time hours is another classic. The system is set to accrue four weeks per year regardless of whether someone works 38 hours or 20 hours per week. Part-timers get overpaid. Full-timers might be correct. But the part-timer accruals are wrong.
Public Holiday Pay Errors
Public holidays falling during annual leave must be paid — but they don’t count against the employee’s leave balance. Someone takes two weeks of annual leave, and three public holidays fall within that period. They should be paid for 10 working days plus three public holidays, but only have 10 days deducted from their leave balance.
Award Interpretation Errors
Applying the wrong award entirely is more common than you’d think, especially when someone’s role changes or when awards are updated. The employee was hired as a labourer under the Building Award, but now does office administration. Nobody updated the payroll award code. Years pass. Wrong entitlements the whole time.
Enterprise agreements often override parts of awards. Your construction business has a CFMEU EBA with enhanced leave provisions, including five weeks of annual leave plus annual leave loading calculated as the higher of 17.5% or the average weekend penalty. Payroll is set up using the standard award provisions. Everyone’s underpaid.
Part-Time and Casual Errors
Treating casuals as entitled to paid leave is an overpayment waiting to happen. They get the 25% casual loading instead — that’s their compensation for not receiving leave entitlements.
Applying full-time entitlements to part-time employees creates overpayment. Incorrect pro rata calculations, either way, create overpayment or underpayment depending on the direction of the error.
Prevention Strategies
Prevention Strategies include regular payroll audits by qualified professionals, utilising real-time reporting to identify errors before they escalate, award interpretation software that updates when awards change, and providing proper training for payroll staff on both the technical system and the industrial relations framework.
How Wojo Helps You Get Leave Calculations Right
The challenge with leave entitlements isn’t knowing they exist. It’s implementing the specific, complex calculations correctly for every employee, every pay period, across changing rosters and employment conditions.
Pre-Set Awards
Wojo presets awards to the system. Leave entitlements are automatically calculated based on the award assigned to each employee. Leave loading applies correctly, shift worker entitlements are identified, and accrual rates adjust automatically.
Custom EBA Rule Engine
For construction businesses operating under CFMEU, ETU, or CEPU enterprise agreements, Wojo’s EBA rule engine enables you to configure the specific leave provisions outlined in your agreement.
Enhanced entitlements above NES minimums, custom leave loading calculations (like the comparison method between 17.5% and average penalty rates), and special conditions all get built into the payroll system.
Automatic Leave Accrual
Correct accrual rates apply automatically based on the employee’s ordinary hours and award. Part-time employees accrue benefits proportionally, without requiring manual calculation. Leave balances update in real-time.
Leave Loading Automation
Whether it’s straight 17.5% or the comparison method required by many construction awards, Wojo calculates and applies leave loading automatically. It’s included in leave payments when employees take annual leave, and it’s correctly calculated on termination payouts.
Integrated Timesheets
Leave requests flow through Wojo timesheets. When approved, the system automatically deducts from leave balances and calculates the payment, including leave loading where applicable. Manager approval workflows ensure requests are reviewed before being processed, and everything’s documented for compliance purposes.
Termination Pay Calculator
When an employee finishes up, Wojo calculates all accrued leave entitlements — annual leave with leave loading, long service leave (where applicable), and confirms that personal leave isn’t included.
Accounting Integrations
Integration with Xero, MYOB, QuickBooks, and other accounting platforms ensures that liabilities are tracked accurately in your financial statements. The provision for leave on your balance sheet matches the actual accrued entitlements in the payroll system.
Getting Leave Right Matters More Than You Think
Leave calculations might seem like a back-office detail, but they’re one of the highest-risk areas in payroll compliance. Fair Work recovered nearly half a billion dollars for underpaid workers in 2023-24, and leave entitlements are consistently among the top error categories.
Getting it wrong doesn’t just cost money in back payments. It damages trust with your workforce, creates exposure to penalties, and signals to regulators that your payroll processes aren’t fit for purpose.
The right payroll system calculates correctly based on the specific award and agreement provisions that apply to each employee. It eliminates manual interpretation and prevents the compounding errors that can turn a small mistake into a major compliance issue.
Want to stop worrying about leave calculation errors? Book a call with Wojo to see how our award interpretation engine handles leave loading, accrual, and termination payouts automatically, so you can be confident you’re paying correctly every time.
