Leave when employment ends¶

When an employee's job ends — whether they resign, are let go, or their role is made redundant — there is usually some leave to sort out in their final pay. Not all types of leave are treated the same way, so it helps to know which ones get paid out and which do not.

The short version: unused annual leave is generally paid out, unused personal/carer's leave generally is not, and long service leave depends on where the employee works.

In one line

When an employee leaves, unused annual leave is generally paid out in their final pay, unused personal/carer's leave generally is not, and long service leave depends on state or territory rules.

Why this matters¶

The final pay is easy to get wrong, and getting it wrong means either underpaying someone who is leaving or paying out leave that should not be paid. Knowing the basic rules for each type of leave helps you understand what belongs in a final pay and check that the amounts look right.

What you will learn¶

That unused annual leave is generally paid out in the final pay
That unused personal/carer's leave is generally not paid out
That long service leave may be paid out depending on state or territory rules

Understanding the concept¶

Unused annual leave. Fair Work explains that when employment ends, the employer has to pay the employee for any annual leave they have built up but not used. This is generally paid out in the final pay. Fair Work also explains that this payment must be the same as what the employee would have received if they had taken the leave — so if leave loading would have applied while they were employed, the loading is included in the payout.

Unused personal/carer's leave. This is treated differently. Fair Work explains that sick and carer's leave (personal/carer's leave) is generally not paid out when employment ends. The employee simply does not receive a payment for the personal leave balance they have built up.

Long service leave. Long service leave is a longer-term entitlement that builds up after an employee has worked for the same employer for a number of years. Fair Work explains that whether unused long service leave is paid out when employment ends — and how much — depends on the long service leave laws in the employee's state or territory. Because these rules differ from place to place, long service leave has to be checked against the rules that apply where the employee works.

For accountants & bookkeepers

The ATO applies specific withholding rules to unused leave paid on termination — these are handled differently from the leave an employee is paid while they are still working, and the treatment can depend on things like the reason employment ended and when the leave accrued. You do not need to work the tax out by hand: the ATO publishes the rules and payroll software applies them. For long service leave payout eligibility and amounts, the governing rules are the relevant state or territory long service leave laws.

Example¶

Ben resigns from a full-time job. In his final pay, his employer pays out the annual leave he has built up but not used — including leave loading, because his award applied loading to his annual leave while he was employed. His unused personal/carer's leave balance is not paid out. Ben has not been with the employer long enough to have a long service leave entitlement, so there is nothing to consider there.

The tax taken out of the unused leave in Ben's final pay follows the ATO's rules for leave paid when employment ends, which the payroll software applies for the employer.

Common mistakes¶

Paying out unused personal/carer's leave — it is generally not paid out on termination.
Forgetting to include leave loading in the annual leave payout when the loading applied during employment.
Assuming long service leave is always paid out the same way — it depends on the state or territory rules.

How this works in myaccountant¶

In the app — when you finalise an employee's pay because they are leaving, myaccountant helps you handle their final pay, including paying out unused annual leave. The payout appears on the final payslip, so the employee can see the leave they have been paid for.

Key points¶

Unused annual leave is generally paid out in the employee's final pay.
The annual leave payout includes leave loading if the loading applied during employment.
Unused personal/carer's leave is generally not paid out when employment ends.
Long service leave may be paid out depending on the state or territory rules.
The ATO has specific rules for taxing unused leave paid on termination — the payroll software applies them.

Learn next¶

General information only — not tax, super or financial advice.

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