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Employee Leave Entitlements: Getting the Calculations Right
Why Do I Need to Calculate Employee Leave Entitlements?
Purchasing a business is a complicated process that often leaves critical tasks overlooked. If you have purchased a business that retains existing employees, you’ll need to calculate their employee leave entitlements if they choose to stay on through the ownership change.
Ensuring that the employees you retain through an ownership change remain satisfied with their employment, it’s important that you uphold their leave entitlements. This guide will provide details on how to calculate annual leave and how to calculate long service leave.
How Does Annual Leave Work?
- Employees are also entitled to annual leave. Annual leave accrues in accordance with an employees hours, with every year of service performed by the employee.
- Full-time employees are entitled to four weeks of annual leave for every year of service
- Part-time employees are entitled to annual leave on a pro-rata basis
- Casual employees are not entitled to annual leave
These employee leave entitlements may change based on individual employment agreements. Under Australian law, employment agreements can only grant employees with more annual leave than they would otherwise be entitled to, not less. Employment agreements can not reduce leave below the above entitlements.
How to Calculate Employee Annual Leave Entitlements
- Annual employee leave entitlements are calculated via three steps:
- Calculate total annual leave hours
Multiply the total number of weeks an employee has worked by 2.923. This calculates the total hours of annual leave accrued by the employee.
- Deduct leave
Deduct any annual leave the employee has already taken
- Calculate the total amount that must be paid in annual leave
Multiple the total hours of accrued annual leave by the employee’s hourly rate of pay
How Does Long Service Leave Work?
- Australian law dictates that an employer must provide annual leave to an employee that has completed a minimum of 10 years of service. An employee that meets these requirements is entitled to two months of paid long service leave. This entitlement varies from state to state but typically applies to:
- Full-time employees
- Part-time employees
- Casual employees
How Much Do I Pay Employees on Long Service Leave?
Employers must pay employees the weekly wage that the employee earns on an ordinary basis during for the duration of their long service leave. Subsequent to the initial ten-year long service leave period, employees are typically entitled to an additional month of long service leave every five years.
How to Calculate Employee Long Service Leave Entitlements
- When calculating an employee leave entitlement for long service you must include the entire duration of employment up to and including the day you purchased a business. Calculating long service leave entitlements is performed in three steps:
- Determine the amount of weeks of long service leave that must be paid
Employers must calculate the total number of years an employee has been engaged by the business, including decimals. This period is defined as the first day the employee began working for the business until the day the business was purchased.The total number of years is then multiplied by 8.667
- Calculate long service leave entitlements
Multiply the employee’s weekly wage allowance by the total number of completed employment years as of the day the business was purchased. Deduct any long service leave that has already been taken by the employee.
- Calculate the total amount that must be paid during long service leave
Multiply the employee’s long service leave entitlement by the employee’s ordinary weekly pay.
Leave Calculation Basics
Calculating employee leave entitlements is affected by state legislation. Generally all employees that have worked for a business for 10 years entitled to long service leave. All full-time and part-time employees are entitled to annual leave in accordance with the total hours they have worked. There are tools to help you.
Calculating the total amount of leave entitlements you must provide to your employees can be a complicated process. If you’re unsure of your employee leave obligations, contact Fullstack for guidance today.
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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech companies, crypto and entrepreneurs.