Payroll Pitfalls, Switching Risks and Official Sources
Leave accrual set-up errors in payroll software: annual, personal and long service leave
The most common leave accrual mistakes in Australian payroll software, how they build up, worked examples of the cost, and how to test annual, personal/carer's and long service leave settings.
Leave accrual errors are among the most common and least visible payroll software problems in Australia. A rule set up once — accrue annual leave on all hours paid, accrue in days instead of hours, treat a part-timer as full-time, forget that casuals do not accrue paid leave, or miss state-based long service leave — keeps running every pay for years. The result is either a growing underpayment when leave is taken or paid out on termination, or an inflated leave liability on your balance sheet. Test leave settings against the National Employment Standards (NES), your award and the long service leave law of each state or territory where your staff work, and reconcile balances at least once a year.
This guide is part of payroll software pitfalls and official sources. It is general information; check the Fair Work Ombudsman and your state's long service leave authority for the rules that apply to you.
The entitlements software has to model
| Leave | Basic rule (NES unless stated) | Common set-up error |
|---|---|---|
| Annual leave | 4 weeks a year for full-time and part-time employees (pro rata), accruing progressively according to ordinary hours; an extra week for some shift workers under an award | Accruing on overtime hours; wrong base hours for part-timers; casuals accruing |
| Annual leave loading | Set by the award or agreement (commonly 17.5% or shift penalties, whichever is higher, in some awards) | Applied to everyone or to no one |
| Personal/carer's leave | 10 days a year for full-time (pro rata for part-time), accruing progressively | Granted as a lump sum each year; not accruing on paid leave |
| Compassionate leave | 2 days per occasion (unpaid for casuals) | Set up as an accruing balance |
| Paid family and domestic violence leave | 10 days in each 12-month period, not accruing, available to casuals too | Missing, or shown on payslips in a way the rules prohibit |
| Long service leave | State and territory laws (and portable schemes in some industries) | One rule used for all states; prior service not recorded |
Why errors build up
Leave accrues every pay, so a small error repeats 26 or 52 times a year, for every affected employee. It is rarely noticed until someone takes a long period of leave or leaves the business and is paid out.
Illustrative example: accruing on overtime. A full-time employee on 38 ordinary hours a week accrues annual leave at 4 weeks ÷ 52 weeks: 152 ÷ 1,976 ≈ 0.0769 hours per hour worked. The employee also works 5 hours of overtime a week, and the software accrues on all hours paid.
- Extra accrual: 5 × 0.0769 × 48 working weeks ≈ 18.5 hours a year.
- At $35 an hour, that overstates the liability by about $646 a year for one employee.
- Across 30 employees over three years: about $58,000 of overstated leave liability, and possible disputes when the error is corrected.
Illustrative example: part-timer on full-time hours. A part-time employee on 22.8 hours a week (0.6 FTE) is set up with a full-time 38-hour accrual base. The system accrues 152 hours a year instead of 91.2. The overstatement is 60.8 hours a year.
The reverse errors — accruing on fewer hours than ordinary hours, or stopping accrual during paid leave — underpay employees.
Long service leave: state differences
Long service leave is mostly governed by state and territory legislation, with differences in the qualifying period, the amount of leave, when pro rata leave is payable on termination, how casual service counts and what counts as continuous service. Some industries, such as construction in several states, community services and contract cleaning in some jurisdictions, have portable long service leave schemes, where the employer reports service and pays a levy to a scheme authority.
For payroll software this means:
- each employee needs the correct jurisdiction and service start date (including recognised prior service, for example after a business transfer);
- accrual rules must be set per state, not one rule for everyone;
- portable scheme reporting is usually a separate process.
Check the long service leave authority in each state where you employ people, for example the relevant state industrial relations department or portable scheme board.
Opening balances when you switch software
Most leave errors that appear "out of nowhere" come from migration:
- balances imported in days when the new system works in hours (8 days imported as 8 hours);
- negative balances (leave taken in advance) imported as zero;
- long service leave start dates missing, so accrual restarts;
- time off in lieu balances lost.
Reconcile every employee's balances between old and new systems before the first live pay. See switching payroll software mid-year.
A leave set-up test
- Pick five employees: full-time, part-time, casual, a shift worker entitled to extra annual leave, and someone with long service in another state.
- For each, calculate by hand the expected accrual for one pay period and one year.
- Compare with what the software accrues.
- Process a week of annual leave and a day of personal leave; check balances and pay (including loading).
- Process a termination for one of them and check the payout of annual leave and any pro rata long service leave.
- Record the results and repeat after any award change or software update.
Annual reconciliation
Once a year, export leave balances and check:
- any balance higher than you would expect (for example more than two years' annual leave for a full-timer);
- any negative balances;
- casuals with annual or personal leave balances;
- employees with no long service leave start date.
Excessive annual leave balances may also be a business risk: some awards contain rules for directing employees to take excessive leave.
Related: accrual errors that reduce entitlements are underpayments, see underpayment and the wage theft offence; leave records for family and domestic violence leave need special care, see employee data privacy.
Frequently asked questions
Does annual leave accrue during paid leave?
Generally yes, annual and personal/carer's leave accrue during paid leave, but not during most unpaid leave (with exceptions such as community service leave). Check the NES and your award.
Should leave be tracked in hours or days?
Hours are more precise, especially for part-time and shift workers. If the system uses hours, make sure everyone understands balances in hours.
Can casuals have leave balances?
Casuals do not accrue paid annual or personal/carer's leave under the NES, but they are entitled to some unpaid leave, paid family and domestic violence leave and, in many states, long service leave.
Who is responsible if the software accrues incorrectly?
The employer. Correct the settings, recalculate balances and get advice on any underpayment.
Sources
- Fair Work Ombudsman — annual leave, personal/carer's leave, family and domestic violence leave and long service leave overview
- Fair Work Commission — award clauses on annual leave loading and shift workers
- Federal Register of Legislation — Fair Work Act 2009, Part 2-2 (National Employment Standards)
- business.gov.au — leave entitlements and links to state long service leave information
