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 broadly understood and acknowledged by most businesses, annual leave loading can often be misunderstood.

What is annual leave loading?

A 17.5 per cent 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 top of their base rate of pay.

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

When there’s an 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’re not 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 the relevant Award or Enterprise Agreement. While most Awards provide for a 17.5 per cent 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 per cent or the relevant weekend penalty rates – whichever is greater, but not both. You need to consider the provisions of the applicable industrial instrument to understand how the leave loading is applied.

Because the calculation of annual leave loading is governed by the terms of the relevant Award or Enterprise Agreement, it’s essential to know what Award correctly covers your employees, or if you come under an Enterprise Agreement.