Annual Leave Payout When You Resign — What You're Owed
When you resign in Australia, all unused annual leave must be paid out. Learn how it's calculated, leave loading rules, timing, and tax treatment.
All unused annual leave must be paid out
When your employment ends in Australia — whether by resignation, termination, or redundancy — your employer is legally required to pay out all accrued but untaken annual leave. This is a mandatory entitlement under the National Employment Standards (NES) in the Fair Work Act 2009, and it cannot be contracted away. There are no exceptions: regardless of how your employment ends, you are owed payment for every hour of annual leave you have accumulated but not used. This includes leave that has been accrued in the current year (pro-rata), leave carried over from previous years, and any excess leave beyond 4 weeks that you were entitled to cash out but did not. The payout applies to full-time and part-time employees. Casual employees do not accrue annual leave and therefore do not receive a leave payout on termination (though their casual loading of 25% is compensation for this, among other things). If your employer refuses to pay out your accrued annual leave, this constitutes a breach of the Fair Work Act and you can lodge a complaint with the Fair Work Ombudsman. There is no minimum service period — even if you resign after one month, you are entitled to the pro-rata annual leave you accrued during that month.
How annual leave payout is calculated
The annual leave payout is calculated by multiplying your accrued leave balance (in hours or days) by your applicable pay rate. For employees paid an annual salary, the daily rate is typically calculated as your annual salary divided by 52 weeks divided by 5 days (for a standard 5-day week). For hourly employees, it is your ordinary hourly rate multiplied by the number of accrued hours. For example, if you are a full-time employee earning $80,000 per year with 15 days (3 weeks) of accrued annual leave: daily rate = $80,000 / 52 / 5 = $307.69 per day. Leave payout = 15 days x $307.69 = $4,615.38 (before any loading). For part-time employees, the calculation is based on your ordinary hours — if you work 24 hours per week, your accrued leave reflects those hours. Your payslip should show your current leave balance. If you are unsure of your balance, request a leave statement from your employer before your last day. Reconcile this against your own records of leave taken. Any disputes about the leave balance should be raised with your employer's payroll department and, if unresolved, with the Fair Work Ombudsman.
Leave loading on payout — does it apply?
Whether you receive annual leave loading (typically 17.5%) on your leave payout depends on your modern award or enterprise agreement. The NES itself does not mandate leave loading on payout — it simply requires the leave to be paid at the employee's base rate. However, most modern awards require the payment of annual leave loading (17.5%) on the leave payout when employment ends. Check the specific wording of your award — some awards state that leave loading is payable on payout, while others are silent or exclude it. Enterprise agreements may have their own provisions. If your award provides for leave loading during annual leave, there is a strong argument that it also applies to leave paid out on termination — the Federal Court has generally supported this interpretation. Some awards specify that on termination, the leave payout should be calculated at whichever is higher: the base rate plus 17.5% loading, or the rate the employee would have received if they had taken the leave (including shift loadings, penalty rates, etc.). If you are an award-free employee (typically higher-income managerial employees not covered by any award), leave loading only applies if it is specified in your employment contract. Always check your specific instrument to confirm your entitlement.
Long service leave payout rules
Long service leave operates under state and territory legislation, not the Fair Work Act, so the rules vary by jurisdiction. In most states, if you have completed the minimum qualifying period (typically 7-10 years), you are entitled to a pro-rata payout of accrued long service leave when your employment ends by resignation. In some states, a pro-rata payout is available after a shorter period if the employer terminates the employment (as opposed to the employee resigning). For example, in New South Wales, you are entitled to a long service leave payout after 5 years if your employment is terminated by the employer (including redundancy), or after 10 years if you resign. In Victoria, pro-rata long service leave is payable on termination (by either party) after 7 years. The rate for long service leave payout is usually the employee's ordinary rate of pay at the time of termination. Leave loading generally does not apply to long service leave payouts unless specified in your award, agreement, or contract. If you have between 5 and 10 years of service and are considering resigning, check your state's specific long service leave legislation carefully — you may lose a significant entitlement by resigning rather than waiting to reach the qualifying period.
Timing of final pay — within 7 days
Under most modern awards, your employer must pay all outstanding amounts owed to you (including annual leave payout, any pro-rata long service leave, and other final pay entitlements) within 7 days of your employment ending. Some awards specify the next regular pay cycle as the deadline. If your award does not specify a timeframe, the Fair Work Ombudsman's position is that final pay should be made within a reasonable period — and 7 days is generally considered reasonable. Your final pay should include: wages for any hours worked but not yet paid, annual leave payout (including loading if applicable), long service leave payout (if eligible), any outstanding allowances, overtime, or penalty rates, payment in lieu of notice (if the employer chose not to have you work the notice period), and any other contractual entitlements (such as accrued rostered days off or time in lieu). If your employer fails to pay your final entitlements within the required timeframe, you should first contact them in writing to request payment. If they do not respond or refuse to pay, lodge a complaint with the Fair Work Ombudsman. Interest does not automatically apply to late payments, but the FWO can take enforcement action and courts can order payment of additional amounts.
Tax treatment of annual leave payouts
Annual leave paid out on termination of employment is taxed as a lump sum payment (Employment Termination Payment component) and the tax treatment depends on the reason for termination. If you resign or are terminated (not genuine redundancy), the annual leave payout is taxed at your marginal tax rate. This means the leave payout is added to your other income for the pay period, and PAYG withholding is calculated on the total. Because the lump sum can push your income into a higher bracket for that pay period, the tax withheld may appear higher than expected — but this is corrected when you lodge your annual tax return. If your employment ends due to genuine redundancy, the leave payout component is still taxed at marginal rates (it does not qualify for the tax-free component of a genuine redundancy payment). The leave loading component, if paid on payout, is also taxed at marginal rates. Superannuation is generally not payable on annual leave paid out on termination — the ATO's ruling is that unused annual leave and long service leave payments on termination are excluded from the ordinary time earnings definition for SG purposes. This is different from cashing out annual leave during employment, which is subject to super.
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General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.
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