Leave Loading

Most employers know that permanent employees are entitled to annual leave and personal/carer’s leave in accordance with the National Employment Standards (NES). But did you know that under some Modern Awards and Enterprise Agreements, employees are entitled to an additional leave loading when they take their paid annual leave?

What is leave loading?

Under the NES, permanent employees are paid their ordinary base rate when taking paid annual leave. But under some Modern Awards and Enterprise Agreements, employees are also entitled to leave loading when taking annual leave.

Whether an employee is entitled to an additional leave loading, and the rate of the leave loading, will vary depending on the particular Modern Award or Enterprise Agreement. But generally speaking, most Awards and Enterprise Agreements provide for a leave loading of either 17.5% of the employee’s ordinary base rate or the prescribed weekend penalty rates. In practice, this means that an employee is entitled to receive their base rate of pay + an additional 17.5% leave loading or their base rate of pay plus any applicable weekend penalty rates. The employee is entitled to whichever turns out to be more favourable to the employee, but not both.

Do salaried employees get leave loading?

Without an applicable Modern Award or Enterprise Agreement that provides for leave loading, employees are only entitled to their ordinary base rate when taking a period of paid annual leave.

However, if a Modern Award or Enterprise Agreement which provides for leave loading applies to the particular role that a salaried employee performs, then the salaried employee will be entitled to an additional leave loading also.

Employers will often pay a salary to offset the obligation to pay leave loading, as well as various other entitlements such as penalty rates and overtime. However, the employer must expressly state in a written contract of employment that the employee’s salary offsets leave loading. Otherwise the employer will find it difficult to refute a claim by an employee that he or she is entitled to their ordinary salary plus the prescribed leave loading in the applicable Modern Award or Enterprise Agreement.

Do I have to pay leave loading on accrued but untaken annual leave which is paid out when the employment ends?

Yes, the NES provides that if and when the employment ends the employee has a period of untaken paid annual leave, then the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

The Federal Court in Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2) [2015] FCA 136 confirmed that this means employers must pay any applicable leave loading on any untaken paid annual leave that is paid out when the employment ends.