What is annual leave loading?
Annual leave loading is an additional payment that certain employees may be entitled to receive when they take their annual leave. It is not compulsory for all employees, and eligibility for annual leave loading depends on the specific award, agreement, or workplace arrangement that covers the employee’s employment.
The purpose of annual leave loading is to provide employees with extra compensation while they are on vacation. The amount of the loading can vary, but it is often around 17.5% of the employee’s base rate of pay or their usual rate of pay. However, in some cases, the loading may be equal to a shift loading or the weekend penalty rate, whichever is higher, based on when the leave is taken.
It’s important to note that the National Employment Standards (NES), which are part of the Fair Work Act 2009 in Australia, guarantee a minimum of four weeks of paid annual leave per year for full-time and part-time employees, regardless of any award, agreement, or contract. However, the provision of annual leave loading is not mandatory under the NES and depends on the specific employment arrangement in place.
Who is eligible for annual leave loading?
Employees who fall under a Modern Award or registered agreement are generally eligible for annual leave loading. This means that if an employee is covered by such an industrial instrument, they are entitled to receive an additional payment on top of their base pay rate when they take paid annual leave
However, if they are not covered by such an agreement, they will generally be paid at their base pay rate or their usual rate of pay.
|
|
|
It is worth noting that annual leave loading applies to all accrued annual leave taken by the employee, regardless of whether it is from the current year or carried over from previous years, unless specified otherwise in an industrial instrument.
*To determine if annual leave loading is applicable to your employees, consult the relevant Fair Work regulations.
How to calculate annual leave loading?
Modern awards typically require employees to receive annual leave loading on top of their minimum hourly rate.
The loading is usually calculated as the higher amount between:
- a 17.5% loading on their minimum weekly pay
- the weekend penalty rates they normally receive (including shift loading for shiftworkers).
The comparison is made over the entire period of leave, rather than on a daily basis.
Example
|
Employee |
Work Schedule | Minimum Hourly Rate | Weekend Penalty Rate | Shift Loading |
| John | Tuesday to Saturday, 5 hours per day | AU$20 | AU$25 |
N/A |
Let’s calculate John’s annual leave loading using the provided options.
| Calculation | Amount | |
|
Minimum weekly pay without penalties |
(5 days x 5 hours/day) x AU$20/hour | AU$500 |
| Minimum weekly pay plus leave loading | Minimum weekly pay without penalties + (17.5% of Minimum weekly pay without penalties) |
AU$500 + 17.5% = AU$587.50 |
| Minimum weekly pay plus weekend penalties | (4 days x 5 hours/day) x AU$20/hour + (1 day x 5 hours/day) x AU$25/hour |
AU$400 + AU$125 = AU$525 |
Comparing the two options, John’s minimum weekly pay plus leave loading (AU$587.50) is higher than his minimum weekly pay plus weekend penalties (AU$525).
Therefore, John will receive AU$587.50 for his week of annual leave.
How is annual leave loading calculated upon termination of employment?
An employee’s accumulated annual leave is paid out when employment ends. The employee is entitled to the same annual leave pay on termination that they would have received if they took the period of leave.
This includes any applicable annual leave loading, penalty rates or shift loading. The annual leave loading is calculated in the same way on termination as during employment.
*Please refer to the Fair Work website’s “Final pay” section for more details.
Example
When Alex resigned from his job, he was owed 2 weeks’ annual leave.
The payment for his annual leave on termination included the 17.5% annual leave loading because it was higher than the weekend penalties he would have received if he worked for the 2 weeks.
|
Employee Name |
Amount of Annual Leave Owed | Annual Leave Loading | Reason for Including Loading |
| Alex | 2 weeks | 17.5% |
Higher than weekend penalties if worked for 2 weeks |
How Workstem streamline your leave and payroll efficiently?
Workstem one-stop HR & payroll platform streamlines every aspect, from onboarding and time tracking to award interpretation, payroll processing, STP2 reporting, superannuation, and more.
Workstem’s automated leave feature simplifies leave requests and approvals, ensuring compliance while cutting administrative burdens and costs. Choose from default leave types—annual, parental, jury duty, and long service—and tailor special leaves to your needs.
Stay current with public holidays and enjoy automated leave balance, entitlements, and accrual calculations. With leave data and pay rates in sync, Workstem guarantees precise entitlement payments and tax treatment. Elevate your leave management game with Workstem today!