What is Annual Leave Loading?
Annual leave loading (leave loading) is an extra payment give on top of annual leave to pay, which is usually 17.5% (but may be higher depending on the award or agreement).
Dating back to the 1970s, leave loading was introduced to compensate employees for being unable to access overtime and shift penalties when on annual leave, resulting in a reduction in take home pay.
- When is Leave Loading paid?
- Leave loading is paid when an employee takes a period of paid annual leave and is also paid on accrued annual leave on termination.
- How much annual leave is a full-time or part-time employee entitled to?
- The National Employment Standards (NES) prescribe a minimum of four weeks paid annual leave per year for full-time and part-time employees regardless of any award, agreement or employment contract provision.
- Where is it documented that an employer must pay leave loading?
- Modern awards and enterprise agreements are the industrial instruments that specify leave loading, and these are legal employee entitlements that must be provided by employers.
Key Considerations
- It is critical to determine if your employees are covered by a modern award because failure to do so can result in underpayment of wages claims due to not paying award specified entitlements including leave loading.
- It is possible to incorporate leave loading into an above award rate of pay or annualised salary (if outlined in the relevant award, but it must be clearly specified in the employment contract and clearly explained to the employee.
- If the employment contract refers to an award as covering the employee and the inclusion of leave loading in the above rate or annualised salary, is not specifically stated, the leave loading will still need to be paid regardless of how much the employee is earning.
- If the leave loading is included in a higher hourly rate or base salary when completing the remuneration details section of the employment contract schedule, write (inclusive of annual leave loading), (incl. ALL), or similar.
Of course, only employees that are sufficiently above the award minimum rates of pay can have leave loading included in their hourly rate, base salary or annualised salary.
How can HR Central assist you?
Through our HR Central Subscription, your business can utilise our HR Support Team whenever you need, such as assistance in determining if your employees are covered by an award, and assisting you to complete the remuneration details correctly and answer any enquiries you may have about leave loading requirements.
If you don’t have an HR process, or HR support, it might just be time to investigate a solution best for your business. Click here for more information about an HR Central Subscription.