What is Annual Leave Loading?

Annual leave loading is a lesser known entitlement that applies to a large number of Australian workers covered by certain Modern Awards and enterprise agreements. While annual leave is a broadly understood and acknowledged by most businesses, annual leave loading can often be misunderstood.

What is leave loading?

A 17.5% annual leave loading entitlement is a feature of most modern awards. Leave loading means an employee taking annual leave is also entitled to this extra payment on their base rate of pay.

However, annual leave loading is not an automatic entitlement. Whether or not it is payable is determined by the employee’s Award, Enterprise Agreement or employment contract.

Though, where there is obligation to pay annual leave loading, the additional entitlement MUST be paid on all periods of annual leave taken. In most circumstances, annual leave loading is paid out on accrued annual leave balances upon termination. The loading is not payable on other types of leave, such as personal leave and long service leave.

If an employee is not covered by an Award or Enterprise Agreement, then they will not be entitled to the leave loading (unless their employment contract says otherwise).

When did annual leave loading start?

Annual leave loading was inherited from the 1970s labour movement when many industries were accustomed to working overtime hours. When workers took annual leave, they were missing out on the opportunity to work overtime and earn extra income. As a result, annual leave loading entitlements were introduced to make up for this imbalance. Today, this entitlement exists in many enterprise agreements and modern awards.

How to calculate annual leave loading?

The calculation of annual leave loading is governed by the terms of relevant Award or Enterprise Agreement. That is why it is so important to make sure you know what Award correctly covers your employees or if you come under an Enterprise Agreement.

Whilst most Awards have provisions of a 17.5% leave loading, there may be a higher entitlement for your industry. For example, under the General Retail Industry Award 2010, the leave loading is 17.5% or the relevant weekend penalty rates, whichever is greater but not both. It is therefore fundamental you consider the provisions of the applicable industrial instrument to understand how the leave loading is applied.

For any questions around your annual leave loading or any other employment obligations, speak to a workplace relations specialist today.