What Happens to Your Annual Leave When You Resign? The Complete Australian Guide
When you hand in your notice, every hour of accrued annual leave converts to cash. Here’s exactly how the payout is calculated, how it’s taxed, whether super is owed, and what your employer legally cannot do with it.
Resigning from a job triggers one guaranteed financial event: your employer must pay out every hour of accrued but untaken annual leave. This is not discretionary. Section 90 of the Fair Work Act 2009 makes it mandatory, and it applies whether you resign, are dismissed, or are made redundant. The question most employees have is not whether they’ll receive it — it’s how much it will be, and how much tax they’ll lose.
What you need to know
- Payout is mandatory — every accrued hour must be paid at your ordinary rate under s.90 Fair Work Act
- Leave loading (17.5%) is usually also payable — check your modern award
- Tax uses Schedule 7 — the ATO’s averaging method, reported as Lump Sum A
- Super is generally not owed — leave payouts on termination are excluded from OTE
- Your employer cannot withhold it — not for notice disputes, unreturned equipment, or any other reason
- Final pay timing — must be paid by your next regular pay day after your last day
The payout formula — step by step
Calculating your annual leave payout is straightforward once you know your accrued balance. The formula has three components: your hours, your rate, and whether loading applies.
Your accrued hours come from your payslip leave balance. Your ordinary hourly rate is your base rate — not including overtime penalties, allowances, or bonuses. The 1.175 multiplier applies when your modern award requires leave loading to be paid on termination. Most awards do — but some don’t. Check yours at the Fair Work Ombudsman website if you’re unsure.
To understand exactly how your leave balance was built up before resignation — and to verify your hours are correct — see How Annual Leave Accrues in Australia: The Exact Maths Behind Your Payslip.
Resignation payout estimator
LiveEnter your leave balance, rate, and whether loading applies to see your estimated gross payout.
Gross before PAYG withholding. Tax on the leave component uses ATO Schedule 7 (Lump Sum A). Use the full tax calculator for the net figure.
Estimate tax on your payoutHow your payout is taxed
Annual leave paid out on resignation is not taxed as ordinary income — it uses a special ATO method called the Schedule 7 marginal-rate averaging method. On your income statement it appears as Lump Sum A.
The withholding calculation works like this: the ATO treats the leave payout as if it were spread across a notional period, calculates the marginal tax that applies, then withholds accordingly. In practice this often means less withholding than if the payment were taxed as a single lump sum — because averaging reduces the rate applied to the highest portion.
Resignation vs redundancy — the tax difference
| Termination type | Leave payout tax treatment | ATO schedule |
|---|---|---|
| Resignation | Marginal rate averaging method | Schedule 7 — Lump Sum A |
| Dismissal (not genuine redundancy) | Marginal rate averaging method | Schedule 7 — Lump Sum A |
| Genuine redundancy | Concessional flat rate (32%) on pre-1993 portion; marginal averaging on post-1993 | Schedule 7 — Lump Sum A (most employees post-1993) |
| Early retirement scheme | Same as genuine redundancy | Schedule 7 |
For most employees who started work after 18 August 1993 — which is nearly everyone in the workforce today — the entire leave payout is taxed at the marginal averaging rate regardless of termination reason. The pre-1993 distinction matters for long-tenured older employees only.
Does your employer owe super on your leave payout?
This surprises many employees: no, super is generally not owed on your annual leave payout when employment ends.
Super Guarantee contributions are calculated on Ordinary Time Earnings (OTE). The ATO’s definition of OTE excludes leave payments made on termination. So your employer’s 11.5% super obligation does not apply to the leave payout component of your final pay.
The notice period interaction
Notice period and annual leave payout are two separate things — but they interact in important ways when you resign.
Working your notice vs being paid in lieu
If you work your full notice period, your leave balance continues accruing during that time (because you’re still employed and being paid ordinary earnings). By the time your last day arrives, your leave balance will be slightly higher than when you handed in your notice.
If your employer pays you in lieu of notice — ending employment immediately and paying out the notice period — your leave accrual stops on your last day of actual employment. The notice pay is separate from the leave payout.
Can your employer force you to take leave during notice?
Under section 88 of the Fair Work Act, an employer can direct an employee to take annual leave during notice if the direction is reasonable. Courts have found this to be reasonable where notice periods are long (4+ weeks) or where the employee has excessive leave balances. If you do not want to use your leave during notice, state this in writing early in the process. Any leave taken during notice reduces the payout balance — so it’s worth understanding which outcome you’d prefer.
Can my employer withhold my leave payout?
No. This is one of the most clearly stated obligations in Australian employment law. Under section 90 of the Fair Work Act, every accrued hour of annual leave must be paid on termination. There are no exceptions.
Your employer cannot withhold your leave payout because: you didn’t give enough notice, you didn’t return equipment, there’s a dispute about your performance, you owe money to the employer (debts must be recovered separately through proper legal channels), or any other operational reason.
If your employer withholds your leave payout, lodge a complaint with the Fair Work Ombudsman immediately. The Ombudsman can compel payment and apply penalties against the employer. You can also pursue the amount through the Fair Work Commission or small claims court depending on the amount. Lodge a complaint with Fair Work →
Your resignation leave checklist
Before your last day, work through these steps to make sure your payout is correct.
Your accrued hours should be on your most recent payslip. If it looks wrong, compare against the formula: hours worked × 0.07692 per hour. Any unexplained gap should be queried with payroll before you leave.
Your payout uses your ordinary rate — not your average including overtime or penalties. If you’re salaried, divide your annual salary by 52 then by your ordinary weekly hours to get the hourly rate.
Most modern awards require 17.5% loading to be paid on the leave balance at termination. Look up your award on the Fair Work Ombudsman website and search for “termination” and “leave loading” in the annual leave section.
Use the estimator above or the full payout calculator to get the gross figure. Keep this number so you can compare it to what actually appears in your final pay.
Your final pay should arrive by your next regular pay day after your last day. Verify the leave payout matches your calculation. If it doesn’t, contact payroll immediately — errors are easier to fix before the payroll period closes.
If you’ve been with your employer for several years, you may also be entitled to a long service leave payout on resignation depending on your state and tenure. Rules vary — some states allow pro rata payouts after 7 years.
Disclaimer: This article reflects the Fair Work Act 2009 and ATO withholding rules as at June 2026. Tax treatment of termination payments depends on individual circumstances — consult a registered tax agent for advice specific to your situation. For workplace entitlement disputes, contact the Fair Work Ombudsman. WorkCalc Australia is independent and not affiliated with Fair Work or the ATO.
Frequently asked questions: annual leave payout on resignation
Plain-English answers on payout calculation, tax, super, notice periods, and your rights under the Fair Work Act.
Do you get paid out annual leave when you resign in Australia?
Yes — every accrued hour must be paid out at your ordinary rate under section 90 of the Fair Work Act 2009. This is mandatory regardless of how employment ends: resignation, dismissal, or redundancy. Your employer cannot withhold it for any reason.
How is annual leave payout calculated on resignation?
Payout = accrued hours × ordinary hourly rate. If your modern award includes leave loading on termination (most do), multiply by 1.175. Your ordinary rate is your base pay — not including overtime, allowances, or bonuses. Tax is then withheld under ATO Schedule 7 before payment.
How is annual leave payout taxed in Australia?
It’s taxed using the ATO’s marginal-rate averaging method under Schedule 7 and reported as Lump Sum A on your income statement. This often results in less withholding than ordinary income tax because the averaging method spreads the payment notionally. Your actual tax liability is reconciled when you lodge your tax return.
Does your employer have to pay super on annual leave payout?
Generally no. Superannuation Guarantee contributions are not required on annual leave payouts made on termination because these payments are excluded from Ordinary Time Earnings (OTE) under ATO rules. However, super is owed on annual leave taken during employment — that’s different from a termination payout.
Can your employer make you take leave during your notice period?
Yes, if the direction is reasonable. Under section 88 of the Fair Work Act, an employer can direct an employee to take annual leave during notice. Whether it’s reasonable depends on notice length, operational needs, and leave balance. If you don’t want to use leave during notice, state this in writing as early as possible.
When does your employer have to pay final pay after resignation?
By your next regular pay day after your last day of employment — or earlier if your award specifies a shorter timeframe. If your employer fails to pay on time, you can lodge an underpayment complaint with the Fair Work Ombudsman.
Does leave loading get paid out when you resign?
Usually yes. Most modern awards require 17.5% leave loading to be paid on the leave balance at termination. Some awards exclude it or have specific conditions. Check your award’s annual leave section on the Fair Work Ombudsman website under “termination of employment.”
What happens to annual leave if you are made redundant?
The same mandatory payout rules apply — every accrued hour is paid at ordinary rate plus loading. Redundancy may also trigger long service leave pro rata entitlements depending on your state and years of service. The tax treatment is the same for most employees (post-August 1993) regardless of whether termination is resignation or redundancy.