Understanding Employee Leave: How to Manage Leave Liability

Staying on top of your employees’ leave entitlements is a key part of running a business. Not only do you have a legal obligation to offer certain types of leave, but it’s also just good practice to support your staff when they need time away from work for valid reasons.

From annual leave to community service leave, there are several types of paid and unpaid leave that you’re required to provide. Recently, the federal government introduced paid family and domestic violence leave, which businesses are now legally required to offer and cover the cost of.

But it’s not just about knowing what leave you need to provide—it’s crucial to understand your leave liability as well. Accrued leave, like annual and long service leave, represents a financial commitment that you’ll need to pay out when employees take time off or leave the company. Without a plan to manage this, you could find yourself facing cash flow challenges.

In this article, we’ll break down the essential types of leave you need to be aware of and share tips on how to manage leave liability to help safeguard your business from financial surprises.

Compulsory Leave Types

Below is a list of the different types of leave businesses in Australia must provide to their employees, along with a summary of the typical entitlement.

How these leave entitlements are applied can vary across states, industries and awards/agreements.

For example, here are some recent cases where the application of leave entitlements was a bit tricky:

• An employee needed to take time off to take their child to an orthodontic appointment. They requested carer’s leave, but because the child wasn’t sick the more appropriate leave type was annual leave.
• An employee asked to take time off to celebrate a religious holiday with his family that isn’t a recognised public holiday in Australia. While there is no legal requirement for the business to grant the request, not letting an employee celebrate religious or cultural holidays could be classed as discrimination. The business offered their employee the option to use annual leave or take unpaid leave.
• A business had to correct their leave records when an employee’s annual leave balance was incorrectly deducted for a public holiday. The employee took 12 days off work, but this should have been recorded as only 11 days of annual leave and one public holiday.

To get more information we recommend looking at the leave entitlements information provided by the Fair Work Ombudsman and speaking to an experienced HR practitioner.

Leave type	Typical entitlement
Annual leave	Full-time and part-time workers receive four weeks of annual leave for every 12 months worked. It starts accumulating from their first day and they can take leave as soon as they have accumulated it. Casual employees do not receive annual leave.
Sick / Carer’s / Personal leave	Full time employees are entitled to 10 days of paid sick leave per calendar year. Part time employees receive a pro-rata amount based on their ordinary hours worked. The entitlement resets each year, unused days do not carry over. Casual employees can request unpaid carer’s leave.
Compassionate/ Bereavement leave	All employees, including casuals, are entitled to compassionate leave if: a member of their immediate family or household dies, or contracts or develops a life-threatening illness or injury a baby in their immediate family or household is stillborn they have a miscarriage, or their current spouse or de facto partner has a miscarriage. Employees can take compassionate leave any time they need it, and can take two days of leave each time it is needed. Compassionate leave is paid leave for permanent employees and unpaid for casual staff. Some awards and enterprise agreements may include additional entitlements for compassionate leave.
Parental leave	Permanent employees are entitled to 12 months of unpaid parental leave, but they can also ask for up to another 12months. Eligible employees can take unpaid parental leave when: they give birth their partner gives birth they adopt a child under 16 years of age. Many awards, agreements and company policies also provide for paid parental leave which may be used in addition to unpaid parental leave. The Federal government also provides up to 22 weeks of paid parental leave for eligible parents via the Australian Government Parental Leave Scheme.
Community Service leave	All employees, including casuals, can request community service leave for things like jury duty or voluntary emergency management activities. Community service leave is unpaid, except for when it is taken to complete jury duty responsibilities.
Family and Domestic Violence leave	All employees (full time, part-time and casual) can access 10 days of paid domestic and family violence leave each year. These 10 days are available to them as soon as they start work, they do not accrue over time. The entitlement resets on their work anniversary, unused days do not carry over.
Long Service leave	Long service leave entitlements differ across states, and industries. For example, employees in building and construction jobs are entitled to portable long service leave, which means they continue accruing long service leave even when they change projects or employers. In NSW, full time, part time and casual employees are entitled to long service leave. NSW Industrial Relations overseas long service leave entitlements for NSW.
Public Holidays	All employees have a right to be absent from work on a public holiday. If they do agree to work on a public holiday, they can be eligible for entitlements like public holiday rates, taking additional days off work and minimum shift lengths.
Unpaid leave	Under the National Employment Standards (NES) employees are entitled to unpaid parental, carer’s and community service leave. Casuals are also entitled to unpaid compassionate leave. Employees may also request to take unpaid leave for other reasons, typically because they have no paid leave remaining (e.g. not enough annual leave to cover their holiday). It’s up to the employer’s discretion to agree to these requests.

Tips for managing your leave obligations and liability

Effectively managing employee leave isn’t just about meeting legal requirements—it’s also crucial for protecting your business’s cash flow and maintaining a positive workplace culture.

Mismanaging leave entitlements can lead to financial strain, unhappy employees, and even legal penalties. Understanding your leave obligations and planning for leave liability is key to avoiding these issues.

Here are some practical tips to help you navigate employee leave entitlements and manage your leave liability.

1. Track Leave Accrual in Real-Time

It’s important to stay on top of leave accruals, and using reliable software or payroll systems can help you track it all in real-time. This way, both you and your employees always know exactly how much leave has been earned, which helps avoid misunderstandings or any risk of underpayment.

Dream Admin’s payroll experts can help you in setting up or reviewing your leave tracking processes to ensure they’re compliant and efficient.

2. Understand Your Leave Liability

Regularly reviewing your employees’ accrued leave balances gives you a clear picture of your leave liability, so you can plan ahead. It’s a good idea to include a leave liability report in your monthly or quarterly financial reviews.

If forecasting leave liability feels tricky, Dream Admin can help with this.

Some businesses even highlight leave liability as a separate line in their balance sheet to keep it visible and well-understood by those managing the company’s finances.

3. Set Aside Funds for Accrued Leave

Just like you plan for tax obligations, it’s smart to set aside money in a separate account to cover your leave liabilities. This ensures you’re financially prepared when employees take extended leave or depart from the company. By setting these funds aside, you can avoid being caught off guard and ensure your cash flow stays stable.

4. Encourage Employees to Take Leave Regularly

To avoid leave piling up and increasing your financial liability, it’s a good practice to encourage your team to take their leave regularly. This also supports a healthy work-life balance and reduces the risk of burnout, which can help you avoid further disruptions.

Many businesses implement mandatory shutdown periods, like over Christmas and New Year. Or ask employees to avoid taking leave during peak periods when the workload is highest, and encourage leave during quieter times instead.

5. Review Leave Policies Regularly

Make sure your leave policies are always up to date, easy to understand, and aligned with current laws. Regularly reviewing these policies ensures they reflect both the legal requirements and the needs of your business and employees. It’s a good way to avoid issues down the track.

6. Seek Professional Advice

You don’t have to figure this out on your own! If you’re feeling unsure about managing your leave obligations or liability, seeking expert advice is a smart move. Professional guidance can help you avoid costly mistakes and ensure your leave management practices are compliant with the law.

Dream Admin offers expert payroll and HR services to support you in managing leave obligations and liabilities.

7. Plan for Unplanned Leave

While you can anticipate things like annual leave, other types of leave—like carer’s leave or compassionate leave—can pop up unexpectedly. Having a plan in place for covering unplanned leave will keep your business running smoothly, even when key staff are away. Planning ahead helps ensure that unanticipated absences don’t disrupt your operations.

Managing employee leave is a critical part of running a business, but it doesn’t have to be overwhelming. Knowing the mandatory leave types is just the first step. The real challenge is managing the financial impact of accrued leave.

Encouraging employees to take leave regularly, setting aside funds to cover leave costs, and keeping an eye on leave accruals can go a long way in reducing your leave liability and keeping your business running smoothly.

But with the complexity of leave entitlements and compliance requirements, it’s easy to feel unsure. That’s why reaching out to qualified payroll and HR specialists can make all the difference.

Get in touch with us at Dream Admin so you can enjoy peace of mind that you are staying on top of your leave obligations and managing your leave liability.