Understanding Annual Leave and Long Service Leave
For small business owners, figuring out the requirements for annual leave and long service leave can feel like trying to crack a secret code. Rules, jargon… seriously, who made this stuff so complicated?
Whether you’re trying to keep your business compliant or foster a happy, productive team, this guide will break it all down so you’ll know exactly how Australia’s leave entitlements work, how they accrue, and how best to manage them in your business.
What are annual leave and long service leave?
Before we get into the nitty-gritty, it’s crucial to understand the basics of these two types of leave.
Annual leave
Think of annual leave as your employees’ well-earned holiday time. Under the National Employment Standards (NES), full-time employees are entitled to four weeks of annual leave per year, which accrues progressively throughout the year. Part-time employees receive a pro-rata amount based on hours worked.
This leave is fundamental—it gives employees regular breaks to unwind and recharge. For you as the employer, it’s not only about compliance but also ensuring a well-rested and motivated workforce.
Long service leave
Long service leave, on the other hand, rewards loyalty and commitment. It’s a unique entitlement in Australia, originating from colonial times when long-term employees needed extended leave to travel home.
Typically, long service leave comes into play after 7 to 10 years of continuous service with the same employer, depending on state or territory laws. The amount of leave varies by location, making it essential to know your local regulations (we’ll get to this in a moment!).
Key Differences and Similarities
Here’s a quick snapshot of how annual leave and long service leave compare:
Aspect | Annual Leave | Long Service Leave |
Purpose | Regular relaxation and time off | Recognition of long-term loyalty |
Eligibility | All employees under the NES | Employees with 7–10 years of service |
Accrual | 4 weeks per year | Varies by state, e.g. 0.866 weeks/year in Victoria |
Use | Anytime (as agreed with employer) | Based on state-specific legislation |
Both types of leave overlap in some areas, such as providing well-deserved breaks for employees or requiring careful tracking in your payroll system. However, their differing purposes and eligibility criteria significantly impact how you manage them in your business.
How leave accrues
Annual leave accrual
Annual leave accrues progressively and is calculated based on an employee’s ordinary hours worked. For every 52 weeks of full-time work, employees earn four weeks of leave.
For a part-time employee working 20 hours per week, the calculation is proportionate:
- 20 hours per week ÷ 38-hour full-time week x 4 weeks = 2.11 weeks annual leave per year
Long service leave accrual
Long service leave operates differently. Each state or territory in Australia has its own rules, including when employees become eligible and how much leave they accrue. For example:
- New South Wales: Employees receive 8.67 weeks of leave after 10 years.
- Victoria: Employees earn one week of leave for every 60 weeks worked after 7 years.
Because of these regional variations, understanding local laws is critical. Resources like the Fair Work Ombudsman or the Portable Long Service Leave Scheme for specific industries can provide clarity.
Legal framework for employers
National standards for annual leave
The NES sets a uniform standard for annual leave, applying to all employees covered by the Fair Work Act. As an employer, you cannot:
- Unreasonably refuse a leave request, or
- Force employees to take leave outside agreed business policies.
State-based rules for long service leave
Long service leave legislation varies across Australian states and territories. Here’s a helpful example to illustrate just how different it can be:
- Queensland mandates eligibility after 10 years,
- Victoria, as mentioned earlier, grants leave after 7 years.
Failure to comply with these state-specific rules can result in penalties, so it’s essential to stay up-to-date.
Managing leave in small businesses
Leave management can strain small businesses, especially when every team member counts. Here are practical tips to stay on top of things while protecting your business’s productivity:
- Plan ahead – Use a rostering system to balance employee leave with operational needs. Encourage employees to book holidays in advance to manage workloads effectively during busy periods.
- Use payroll software – Software like Xero, QuickBooks or MYOB tracks leave accruals and makes compliance easier. Many programs are built to accommodate the complexities of Australian leave legislation.
- Budget for long service leave – Unlike annual leave, long service leave represents a financial liability that builds over several years. Regularly review your liability and set aside reserves to avoid surprises when employees take extended breaks.
- Create clear policies – Develop policies outlining:
How employees can take leave,
Required notice periods, and
Leave restrictions during peak business times. - Communicate transparently – Openly discuss leave entitlements and your business needs. Giving employees clarity around how leave is managed (and why) fosters trust and satisfaction.
Best practices for compliance and employee satisfaction
- Be Consistent – Apply leave policies fairly across your team. Any sign of favouritism can lead to dissatisfaction or even disputes.
- Reward Loyalty – Consider offering additional perks for long service leave, such as travel vouchers or early redemption options.
- Promote Work-Life Balance – Encourage employees to take holidays rather than letting leave accrue endlessly. A rested team is a productive team!
The importance of all this
A well-managed leave system is about more than compliance; it’s about fostering trust, maintaining productivity, and rewarding your team’s commitment.
Take the time to familiarise yourself with national NES rules and state-specific legislation, plan your budget for leave liabilities, and invest in tools or software that make tracking simpler.
The result? A satisfied and loyal workforce that keeps your small business thriving!
Talk to us about a solution that will work for you, or if you have any questions about leave entitlements for your employees.