If you finish a job in Australia with unused annual leave, you will generally receive a payout for that leave in your final pay. The payout is generally taxable income, but the PAYG tax withheld from it may be calculated differently from withholding on your regular wages.
1. What is an annual leave payout?
Annual leave is paid time off that most full-time and part-time employees accumulate while working. Under the National Employment Standards, most eligible employees accrue four weeks of annual leave for each year of service, based on ordinary hours. Some shiftworkers qualify for additional leave.
When your employment ends, any unused accumulated annual leave generally must be paid out. This can happen if you resign, your fixed-term employment ends, or your employer terminates your employment.
Casual employees generally do not accumulate paid annual leave under the National Employment Standards, so a standard casual employee usually has no unused annual leave to cash out.
2. Is an unused annual leave payout taxable in Australia?
Yes, generally. A payment for unused annual leave on termination is ordinarily included in assessable income. Your employer withholds PAYG tax and reports the payment to the ATO.
It is important to separate three concepts: the gross payout (before withholding), the amount withheld by payroll, and the final tax outcome determined when your annual income and applicable tax rules are assessed.
3. How is tax withheld from unused annual leave?
The ATO has a specific withholding schedule for unused leave payments made when employment ends. For many modern annual leave balances paid on an ordinary resignation or other normal termination, payroll uses a marginal-rate calculation under that schedule rather than simply treating the entire payout as an ordinary weekly wage.
The correct method can depend on the reason employment ended, when leave accrued, the employee's tax status and whether special rules apply. A genuine redundancy, invalidity or approved early retirement scheme can be treated differently from an ordinary resignation. Special rules apply to working holiday makers.
Because the calculation is situation-specific, there is no single universal tax percentage for every annual leave payout. Ask your payroll team for a breakdown if the withholding looks unexpected.
4. Example: A worker resigns with unused leave
Maya works part-time in hospitality. Her employer confirms that she has 60 hours of unused annual leave and that the applicable annual leave pay rate is $30 per hour.
60 hours × $30 = $1,800 gross annual leave payout.
If Maya is also entitled to a 17.5% leave loading calculated on that amount, the illustrative loading is $315, making the combined gross leave-related payment $2,115.
The actual final payslip may also include outstanding wages and other entitlements. Payroll calculates withholding under the relevant ATO rules, so the net payment will be lower than the gross amount.
Example only. Leave loading is not universal; the correct pay rate and loading depend on the relevant award, agreement and employment terms.
5. What happens to annual leave loading?
Some employees receive annual leave loading or another applicable additional payment when they take annual leave. Under Fair Work guidance, the payment for unused annual leave on termination must generally equal what the employee would have received if they had taken that leave during employment, including applicable leave loading or other relevant payments.
Not every worker receives 17.5% loading. Awards and enterprise agreements vary, and some shiftworkers have different calculations. Check the applicable award, agreement and payroll records rather than assuming a standard rate.
6. Taking annual leave vs receiving a payout when you leave
| Situation | What happens? | What to remember |
|---|---|---|
| Annual leave taken while employed | Paid leave during ongoing employment | Ordinary paid-leave payroll and reporting rules generally apply. |
| Unused leave paid when employment ends | Accumulated untaken leave is paid in final pay | ATO termination leave withholding rules generally apply. |
| Annual leave cashed out during employment | May be allowed under specific award/agreement and legal conditions | Different rules may apply; it is not the same as a termination payout. |
| Unused personal/sick leave | Generally not paid out at termination under the NES | Check whether a separate agreement creates additional rights. |
Unused annual leave paid out on termination is also generally not ordinary time earnings for super guarantee purposes. This differs from paid annual leave taken during employment, which is ordinarily included in ordinary time earnings. Check any award or contractual provisions for additional super obligations.
7. Does resignation, dismissal or redundancy change the tax treatment?
It can. The ATO's withholding schedule distinguishes normal termination from some qualifying circumstances such as genuine redundancy, invalidity and approved early retirement schemes. The payment's character and the period when the leave accrued can also affect how payroll calculates withholding.
Do not assume that a payment labelled “redundancy” on a payslip makes all components tax-free. Unused leave, eligible genuine redundancy payments, payment in lieu of notice and other employment termination payments can have distinct tax rules.
8. How should the payout appear on your final payslip and income statement?
Review your final payslip for the number of leave hours, the hourly rate, any applicable leave loading, gross payment and PAYG withholding. Your employer may report unused leave on termination separately through Single Touch Payroll; reporting categories differ from normal salary and paid leave.
When preparing your tax return, check your ATO income statement through myGov or with your registered tax agent. Do not enter the same amount twice if it has already been reported. If the figures do not match your records, ask the employer to clarify or correct the reporting.
Related: What to do when your income statement is not tax ready.
9. What Nepali workers and international students should know
Changing employers, working part-time while studying, or planning to return to Nepal does not automatically make your unused leave payout tax-free. Your Australian tax residency, other income, withholding and financial-year circumstances can affect your return.
For workers on different visas, it is important not to confuse immigration status with Australian tax residency. A working holiday maker may also be subject to specific withholding rules. If you are leaving Australia permanently, you may have separate tax and superannuation questions.
Read our related guides: Changed Jobs During the Year?, Australian Tax Residency, and Leaving Australia: Tax Return & Super.
10. Final pay checklist before lodging your tax return
- Confirm your unused annual leave balance in hours.
- Check the pay rate and any applicable annual leave loading.
- Compare your final payslip with your employment contract, award or enterprise agreement.
- Identify gross leave payout, other final wages and PAYG withholding separately.
- Check your income statement after the employer finalises reporting.
- Keep payslips, termination letters and relevant leave records.
- Ask payroll about any unexplained differences before lodging.
- Seek individual tax advice if redundancy, working holiday maker or other special rules apply.
Frequently asked questions
Do I get paid for unused annual leave if I resign?
Generally yes. Eligible unused accumulated annual leave must be paid out when employment ends, including any applicable leave loading.
Is annual leave payout taxed at a flat rate?
Not necessarily. The ATO has specific withholding rules for unused leave on termination. The applicable calculation depends on the payment and the reason employment ended.
Will I get the tax withheld from my annual leave back?
Not automatically. Your final tax result depends on your assessable income, deductions, offsets, residency and other circumstances for the financial year.
Do casual employees receive unused annual leave payouts?
Generally no. Casual employees do not usually accrue paid annual leave under the National Employment Standards, although particular employment arrangements should be checked.
Does my employer need to pay annual leave loading when I leave?
If you would have received annual leave loading when taking that leave, it generally needs to be included in the termination payout. The applicable rate depends on your employment conditions.
Is unused sick leave paid when I resign?
Generally not under the National Employment Standards. Check whether your contract or agreement provides an additional entitlement.
Does a leave payout affect my tax return if I have two jobs?
It can. Your final tax assessment considers income and withholding across relevant jobs and other sources during the financial year.
Can Hamro Accountant help me review my final payslip for tax purposes?
Yes. Contact Hamro Accountant for assistance reviewing the tax reporting of your employment income and preparing your tax return. Employment entitlement disputes may also require Fair Work or workplace advice.
Unsure about the tax on your final pay?
Hamro Accountant can help you understand your income statement, PAYG withholding and Australian tax return obligations.
Speak With Hamro Accountant →Official sources and further reading
- Fair Work Ombudsman — Final pay
- Fair Work Ombudsman — Payment for annual leave
- ATO — Withholding Schedule 7: Unused leave payments on termination
General educational information as at 13 October 2026, not personalised tax, financial or employment law advice. Check current ATO and Fair Work rules and seek advice for your circumstances.