By Louise Missen | Head of Member Services, Australian Payroll Association
Public holidays during annual leave are a familiar payroll scenario. An eligible full-time or part-time employee is generally paid for the public holiday where it falls on a day they would ordinarily work and their annual leave balance is preserved.
However, a different outcome applies when annual leave is taken at the same time as unpaid parental leave. Fair Work confirms that the employee is not entitled to payment for a public holiday falling during this arrangement.
For payroll professionals, this requires attention to both the payment and the leave deduction. Applying the usual annual leave settings without checking the underlying parental leave arrangement can produce an incorrect result.
Employees may agree with their employer to use accumulated annual leave during unpaid parental leave. This can provide income during an otherwise unpaid absence. Under section 79 of the Fair Work Act 2009, taking annual leave concurrently does not interrupt the continuity of unpaid parental leave. Section 79B also provides that taking paid leave during unpaid parental leave does not extend that parental leave period. The two leave types run together. This distinction matters when a public holiday occurs. Although the employee receives annual leave payments for other eligible days, their unpaid parental leave arrangement remains relevant to the public holiday.
Section 89(1) of the Fair Work Act 2009 provides that an employee is not taken to be on paid annual leave on a public holiday occurring during that leave. Consequently, the public holiday should be excluded from the annual leave deduction.
In this concurrent leave arrangement, payroll therefore needs to recognise two separate outcomes: the public holiday is unpaid, and the employee’s annual leave balance is not reduced for that day. Fair Work’s example expressly confirms both points.
Consider an employee who usually works Monday to Friday, 7.6 hours per day. They are on an approved period of unpaid parental leave and arrange to take annual leave concurrently for one week. Monday is a public holiday. Assuming no additional entitlement applies, the payroll treatment is:
| Day | Payment treatment | Annual leave deduction |
| Monday - Public Holiday | Unpaid | Nil |
| Tuesday - Friday | Paid annual leave | 30.4 hours |
| Total | 30.4 hours of annual leave paid | 30.4 hours |
This worked example applies Fair Work’s guidance to a standard five-day work pattern. Payroll should neither pay Monday as a public holiday nor deduct 7.6 hours of annual leave to cover it.
The employee may agree with their employer to extend the annual leave booking by one day so they receive the intended number of paid annual leave days. Fair Work illustrates this approach in its parental leave guidance. This does not automatically extend the approved unpaid parental leave period. Payroll should obtain the revised approval and confirm the additional date before processing it. Avoid automatically adding a day simply because the original booking includes a public holiday.
Another relevant distinction concerns leave accruals. Employees generally do not accrue annual leave or personal/carer’s leave during unpaid parental leave. However, these entitlements accrue during paid annual leave taken within that period. For payroll teams, this means reviewing accrual settings alongside the payment calculation. A system that treats the entire absence as unpaid parental leave could miss accruals associated with the paid annual leave.
Before processing concurrent leave, confirm the approved parental leave dates, the annual leave booking and any relevant public holidays. Review the applicable award, enterprise agreement, employment contract and workplace policy for additional benefits. Check how the payroll system handles overlapping leave. In particular, review automatic public holiday payments, annual leave deductions and any manual adjustments needed to produce the correct result. Clear communication also matters. Explain the public holiday treatment when the annual leave is approved, or add it to your Parental leave policy, giving the employee an opportunity to discuss an additional leave day before the pay run.
A documented process helps payroll apply the rule consistently and gives employees a clear understanding of their expected pay.