When an employee leaves your business — whether by resignation, redundancy, or dismissal — you have clear legal obligations to pay out accrued leave. Getting this wrong is one of the most common triggers for Fair Work investigations, and since 2025, intentional underpayment is a criminal offence carrying fines up to $1.65 million for individuals.
This guide explains what you must pay out, how to calculate it correctly, and the state-by-state variations that apply to long service leave.
Key Takeaways
- ALL accrued annual leave must be paid out on termination, regardless of reason
- Annual leave is paid at the employee’s base rate of pay for ordinary hours
- Leave loading (17.5%) must be paid out if required by the applicable award
- Long service leave payout rules vary by state and territory
- Personal/carer’s leave is generally not paid out on termination
- Casual employees receive no leave payout (they have no paid leave entitlements)
Annual Leave on Termination
The Mandatory Payout Rule
Under the National Employment Standards (NES), all accrued but unused annual leave must be paid out on termination. This applies to:
- Resignation
- Redundancy
- Dismissal
- End of fixed-term contract
- Death of an employee
You cannot withhold or forfeit accrued annual leave for any reason. This is a non-negotiable requirement.
How to Calculate the Payout
Annual Leave Payout = Accrued leave hours × Base hourly rate
Example: Employee resigns with 114 hours accrued, earning $30/hour:
114 hours × $30 = $3,420
Does Leave Loading Apply on Termination?
Whether you must pay leave loading on termination depends on the applicable Modern Award or enterprise agreement.
- Many awards require leave loading (17.5%) to be paid out on unused annual leave
- Some awards exclude leave loading from termination payouts
- Non-award employees only receive leave loading if specified in their employment contract
Complete Termination Payout Example
Employee earning $28/hour with 76 hours accrued leave, where leave loading applies:
- Base leave pay: 76 × $28 = $2,128
- Leave loading: 76 × $28 × 0.175 = $372.40
- Total annual leave payout: $2,500.40
Note: If the award does not require leave loading on termination, payout would be $2,128.
Long Service Leave Payout by State
Long service leave (LSL) is governed by state and territory legislation, NOT the Fair Work Act. Payout rules on termination vary significantly by jurisdiction.
New South Wales
Entitlement: 2 months (8.67 weeks) after 10 years
Pro-rata payout: Available after 5 years for any termination except serious misconduct
Calculation: Full 10-year entitlement × (Years of service ÷ 10)
Example: Employee resigns after 7 years:
8.67 weeks × (7 ÷ 10) = 6.07 weeks pro-rata entitlement
Victoria
Entitlement: 8.6667 weeks after 7 years
Pro-rata payout: Available after 7 years for ALL terminations (including resignation)
Additional entitlements: 4.3333 weeks for each subsequent 5 years
Example: Employee made redundant after 8.5 years:
8.6667 weeks (first 7 years) + (4.3333 × 1.5 ÷ 5) = 9.97 weeks
Queensland
Entitlement: 8.6667 weeks after 10 years
Pro-rata payout: Available after 7 years for ALL terminations
Additional entitlements: 4.3333 weeks for each subsequent 5 years
Example: Employee resigns after 8 years:
8.6667 weeks × (8 ÷ 10) = 6.93 weeks pro-rata entitlement
South Australia
Entitlement: 13 weeks after 10 years (most generous in Australia)
Pro-rata payout: Available after 7 years
Example: Employee dismissed after 8.5 years:
13 weeks × (8.5 ÷ 10) = 11.05 weeks pro-rata entitlement
Western Australia
Entitlement: 8.6667 weeks per 10-year period
Pro-rata payout: Only available if:
- Employee dies
- Employee is terminated (not for serious misconduct)
- Employee terminates due to illness, incapacity, or domestic pressing necessity
Important: Resignation does NOT qualify for pro-rata LSL payout in WA
Tasmania
Entitlement: 8.6667 weeks after 10 years
Pro-rata payout: Available after 10 years only (no 5- or 7-year pro-rata)
Example: Employee resigns after 9 years, 11 months:
- No pro-rata payout (must complete 10 full years)
ACT
Entitlement: 6.0667 weeks after 7 years
Pro-rata payout: Available after 7 years for all terminations
Northern Territory
Entitlement: 13 weeks after 10 years
Pro-rata payout: Available after 7 years
leave emails? Track your employee's leave with Leave Balance
State-by-State LSL Payout Reference
| State/Territory | Full Entitlement | Qualifying Period | Pro-rata Available From | Resignation Qualifies? |
|---|---|---|---|---|
| NSW | 8.67 weeks | 10 years | 5 years | Yes |
| Victoria | 8.67 weeks | 7 years | 7 years | Yes |
| Queensland | 8.67 weeks | 10 years | 7 years | Yes |
| South Australia | 13 weeks | 10 years | 7 years | Yes |
| Western Australia | 8.67 weeks | 10 years | 7 years | No (except for death/illness/compelling reasons) |
| Tasmania | 8.67 weeks | 10 years | 10 years | No |
| ACT | 6.07 weeks | 7 years | 7 years | Yes |
| Northern Territory | 13 weeks | 10 years | 7 years | Yes |
What Leave Does NOT Get Paid Out?
Personal/Carer’s Leave
Unused personal/carer’s leave does NOT need to be paid out on termination under the NES. It accumulates year to year and is lost when employment ends.
Compassionate and Bereavement Leave
Compassionate leave is provided on an “as needed” basis — it does not accumulate, so there is no balance to pay out.
Unpaid Leave
Any unpaid leave taken during employment (such as unpaid parental leave or unpaid personal leave) is simply time off without pay. There is nothing to pay out.
Casual Employees
Casual employees are not entitled to paid leave entitlements. They receive:
- No annual leave payout
- No personal/carer’s leave payout
- No long service leave payout
Casual loading (25%) compensates them for the lack of these entitlements.
Calculating the Final Pay
A complete termination payout includes several components. Here is what you need to calculate:
Final Pay Checklist
Required components:
- Accrued annual leave (at base rate)
- Leave loading (if award requires)
- Pro-rata long service leave (if eligible)
- Outstanding wages/salary
- Accrued overtime
- Unused rostered days off (if applicable)
- Redundancy pay (if applicable)
NOT required:
- Personal/carer’s leave (does not pay out)
- Compassionate leave (does not accumulate)
- Unused annual leave forfeited (unlawful to withhold)
Example: Complete Termination Pay
Employee in Victoria:
- Base rate: $32/hour
- Accrued annual leave: 114 hours
- Service: 8 years
- Leave loading applies: Yes
- Redundancy pay applies: Yes (8 weeks at base rate)
Annual leave payout: 114 × $32 = $3,648 Leave loading: 114 × $32 × 0.175 = $639.60
Long service leave (Victoria pro-rata): 8.6667 weeks × (8 ÷ 7) = 9.90 weeks 9.90 weeks × 38 hours = 376.2 hours 376.2 × $32 = $12,038.40
Redundancy pay: 8 weeks × 38 hours = 304 hours 304 × $32 = $9,728
Total termination pay: $3,648 + $639.60 + $12,038.40 + $9,728 = $26,054
Common Termination Payout Mistakes
1. Withholding Annual Leave for Any Reason
It is unlawful to withhold accrued annual leave for any reason — including if the employee resigns without notice. You can withhold pay IN LIEU OF notice period, but you cannot touch accrued leave.
2. Forgetting Leave Loading
Many employers pay out annual leave at base rate but forget the 17.5% loading required by most awards. Check your applicable award’s termination clauses.
3. Applying the Wrong State’s LSL Rules
Long service leave is state-based. If you operate across multiple states, apply the employee’s work location rules, not the head office state.
4. Missing Pro-Rata Eligibility
In WA, pro-rata LSL is NOT available for resignations (except illness/death/compelling reasons). In Tasmania, employees must complete 10 full years to qualify for any LSL. Applying NSW pro-rata rules to a WA employee results in overpayment.
5. Not Paying Out in Final Pay
All leave payouts must be included in the employee’s final pay. Delaying payment of leave entitlements beyond the final pay period is a contravention of the NES.
6. Including Non-Payout Leave Types
Personal/carer’s leave does not pay out. Including it in the final pay is technically incorrect and can cause confusion if the employee believes they received a payout for it.
FAQ: Termination Payouts
Do I have to pay out annual leave if an employee is fired?
Yes. ALL accrued annual leave must be paid out on termination regardless of the reason — dismissal, redundancy, resignation, or contract end. The reason does not matter.
What if an employee resigns without notice?
You can withhold pay for the notice period they didn’t work, but you CANNOT withhold accrued leave. Leave must still be paid out in full.
Does leave loading always apply on termination?
No. It depends on the applicable Modern Award or enterprise agreement. Many awards require leave loading on termination payouts, but some exclude it. Check your award’s specific clauses.
What if I can’t afford to pay out all the leave at once?
The NES requires leave to be paid out in the final pay period. There is no provision for instalments or delayed payment. If cash flow is a concern, review your leave accrual projections and encourage employees to take leave regularly to reduce the liability.
How do I calculate long service leave for an employee who worked in multiple states?
Apply the rules of the state where the employee was primarily working. If they split time across states, you may need to calculate partial entitlements for each period under the applicable state legislation.
Do I have to pay out personal/carer’s leave?
No. Personal/carer’s leave accumulates year to year but is not payable on termination. It is lost when employment ends. This is a standard provision under the NES.
What happens if I accidentally underpay termination leave?
Since January 2025, intentional wage underpayment is a criminal offence. Civil penalties apply even for honest mistakes. If you discover an error, pay the shortfall immediately. Self-reporting to the Fair Work Ombudsman can reduce penalties in some cases.
Can I offer a payment in lieu of notice instead of requiring the employee to work their notice period?
You can offer payment in lieu of notice, but this is the employee’s choice. You cannot force them to take payment instead of working their notice period unless they agree. This payment is SEPARATE from leave payouts — you still must pay out all accrued leave.
How quickly must I pay out leave on termination?
All termination payments, including leave payouts, must be made in the employee’s final pay period. Delays beyond this period contravene the NES.
Do casual employees get any leave payout?
No. Casual employees receive no paid leave entitlements. The 25% casual loading on their hourly rate compensates them for the lack of annual leave, personal/carer’s leave, long service leave, notice of termination, and redundancy pay.
Next Steps
Now that you understand termination payout obligations, you may want to explore related topics:
- Annual Leave Calculator Australia: How to Calculate Entitlements and Payouts — detailed formulas and worked examples
- Long Service Leave in Australia: A State-by-State Guide — complete state-by-state reference
- Leave Loading in Australia: How to Calculate It and Who Gets It — understanding 17.5% loading requirements
leave emails? Track your employee's leave with Leave Balance