What is annual leave loading?
Leave loading, or holiday leave loading, means an employee taking annual leave is entitled to an extra payment in addition to their base rate of pay. This payment is made either upon commencement or during a period of annual leave.
While the loading amount (if any) varies depending upon the industrial instrument which covers the employee’s employment, it is often 17.5% of their base rate or usual rate of pay. However, the loading may be equal to a shift loading or the weekend penalty rate, whichever is higher, depending on when the leave is taken.
The National Employment Standards (NES) – a set of standards that form part of the Fair Work Act 2009 and apply to all employees covered by the national workplace relations system – prescribe a minimum of four weeks paid annual leave per year for full-time and part-time employees regardless of any award, agreement or contract.
Annual leave loading eligibility
Not every employee receives leave loading. Eligibility for annual leave loading and the loading that applies is derived from the award or enterprise agreement that applies to the employee. If they are not covered by an award or registered agreement, then an employment contract with the employer may provide for annual leave loading.
Employees under many Modern Awards or registered agreements are entitled to a loading when the employee takes paid annual leave. If the employee doesn’t fall under a relevant award or registered agreement, they will be paid at their base pay rate or the rate at which they are usually paid.
A full-time employee is entitled to four weeks annual leave per year based on their ordinary hours of work up to 38 hours a week. Part-time employees are entitled to pro-rata paid leave according to the number of hours they work. Shift workers may be entitled to more. Whether or not an employee is a shiftworker will depend on the definition in the relevant award or registered agreement that applies to that employee.
It is also important to remember that unless it is otherwise provided by an industrial instrument, annual leave loading is payable on all accrued annual leave when it is taken by the employee. Meaning that it is not restricted to just the current year’s accrual, as untaken annual leave carries over from year to year.
Annual leave loading on termination
In the case of an employee’s termination, that employee must be paid out their remaining unused annual leave, and annual leave loading on top if they are entitled to it. If an employee is entitled to annual leave loading during their employment, it also has to be paid out when employment ends.
However, some employees may receive an annual salary or an all-inclusive hourly rate that incorporates annual leave loading, in which case it does not need to be paid separately. Whether it is included in the salary amount or forms part of an hourly rate will usually be stated in the employment contract.
Annual leave loading on termination is paid out even when an award, registered agreement or employment contract says that it’s not as the entitlement is based on a provision of annual leave on termination within the Fair Work Act 2009. The provision states that if an employee is terminated and they have a period of unused annual leave, they must be paid out what they would have been paid had they taken that period of annual leave.