A guide to annual leave payout on resignation
So you’ve decided to leave your job, but what happens to all the holidays you haven’t used yet? Resigning from your job doesn’t mean that you miss out on your accrued annual leave entitlements. And you don’t have to take annual leave before you move on, either.
In this article, we explore how annual leave is paid out and how to calculate your own payout to ensure you’re paid the amount you’ve earned.
What is a resignation payout?
A resignation payout, also called a severance package, is a payment that you’re entitled to when you voluntarily leave a job. You can expect your final pay from your employer to include:
- Outstanding wages, including penalty rates and allowances
- Any accrued entitlements such as annual leave and annual leave loading
and, if applicable:
- Long service leave payout
- Payment in lieu of notice
- Redundancy pay
Is annual leave loading paid on termination?
What about if your employment is terminated? You might be wondering do you pay annual leave loading on termination? The answer will depend on your type of employment. If you were paid annual leave loading during employment then you should also expect annual leave loading on termination.
It’s always worth checking your employment contract and the Fair Work Ombudsman website for up-to-date information.
How to calculate annual leave payouts upon resignation
Knowing how to calculate your annual leave payout can ensure you receive the right annual leave resignation payout. Here are the steps to keep in mind.
Calculate how much leave you have
First, you should know how much annual leave you have at the time of resigning. According to Fair Work Australia, full-time and part-time employees are entitled to four weeks of annual leave for every year of work, as set out by the Fair Work Act. If you’re a part-time employee, your leave is calculated on a pro-rata basis, meaning it’s adjusted based on the number of hours you work.
Understand your annual leave payout
To calculate your annual leave payout, you’ll need to know your base rate of pay. Your base pay rate is set out in your industry award or agreement, and doesn’t include penalties, allowances, overtime rates, or bonuses. Some employers might use your ordinary rate instead, which is slightly different but generally follows the same principles.
How to calculate your annual leave payout
With this information, you can now calculate your leave payout. Here’s how:
Calculate your total annual leave hours owing (check your last payslip, or use the Pay and Conditions Tool calculator).
Deduct any leave hours you’ve already taken.
Calculate total annual leave payout by taking total hours owing x pay rate.
Add annual leave loading, if applicable to you.
Examples on how to calculate annual leave payout
Here’s an example for a full-time employee earning $25 per hour. They’ve accrued 120 hours of annual leave and taken 40 hours, with a balance of 80 hours owing. You usually get annual leave loading of 17.5% on top of your base rate of pay. Here’s the calculation:
120 – 40 = 80 hours of leave due to be paid
80 x 25 = $2,000 before tax.
2000 x 1.175 = $2,350 before tax
Here’s an example for a part-time employee who works 21 hours per week and earns $30 per hour. They’ve been with the company for two years and have already taken 20 hours of annual leave. They do not usually get annual leave loading. Here’s the calculation:
Leave is pro-rata based on the number of hours worked. So first: we take 21 hours per week and divide by 38 hours (full time hours) to get the pro-rata percentage (21 ÷ 38 = 0.55).
To find the total leave accrued:
152 hours per year (for full time) x 2 years = 304 hours
To calculate leave:
Multiply by pro-rata rate: 160 x 0.55 = 167.2 hours
167.2 hours - 20 hours = 147.2 hours
147.2 hours x $30/hour = $4,416 before tax
Understanding your annual leave payout when you resign is important to ensure you get the benefits you deserve – and to help you manage your finances between jobs. Always keep track of your leave, and don’t hesitate to ask your manager for help if you’re unsure about anything. By knowing how to calculate your annual leave payout, you can make sure your final payslip reflects your entitlements.
FAQs
I’m resigning from my job. Will I get paid for my unused annual leave?
Yes, you will get paid for any unused annual leave you’ve accrued. Any annual leave owing will be paid to you in a lump sum as part of your final payout when you leave your job.
How is my unused annual leave payout calculated?
Your unused annual leave payout is calculated by multiplying your remaining leave hours by your base rate of pay, plus any applicable loadings such as annual leave loading. You can also use an annual leave payout calculator.
How much do you get taxed on annual leave payout?
Your annual leave payout is taxed at the normal marginal income tax rate. This means it will be added to your regular income and taxed accordingly.
Is there a difference in how much I get paid for unused leave depending on how long I’ve been with the company?
No, the amount you get paid for your unused leave depends on how much leave you’ve accrued and your pay rate, not how long you’ve been with the company.
Is it better to take annual leave or get paid out?
When deciding between taking leave or getting paid out, you’ll need to consider your own situation. Taking leave can be a great way to recharge while receiving an income,, but getting paid out can be helpful if you need extra money when you leave your job.
What is the ‘daily pay rate’ used to calculate my annual leave payout?
The daily pay rate is your annual salary divided by the number of your working days in a year. This rate is used to calculate your annual leave payout if you’re paid a salary rather than an hourly wage.
Are there any taxes deducted from my unused annual leave payout?
Yes. Your final pay, including any unused annual leave, will be taxed as part of your regular income at the applicable ATO marginal income tax rate.
What if I’m unsure about the calculation of my annual leave payout?
If you’re unsure about the calculation, ask your HR department or manager for a breakdown. They can provide you with the details and ensure everything is correct. You can also check your leave entitlements with the Fair Work Ombudsman P.A.C.T. leave calculator.
Is there a standard format for tracking my used and unused annual leave days?
Most companies use payroll software to track leave entitlement, and your leaves balances should be detailed on your payslips. You can keep track of your own annual leave using an excel spreadsheet template or an app designed for leave tracking.
Can I negotiate with my employer for a different approach to my unused annual leave payout?
Sometimes you may be able to negotiate a different approach, such as taking additional leave instead of a lump sum payout after you’ve finished working. Talk to your employer to see what options are available.
Sources:
