What is leave loading?
It¡¯s important for employers and business leaders to understand the terminology surrounding employee rights and benefits. In this article, we explain the ins and outs of leave loading (also known as annual leave loading or holiday loading), including who¡¯s entitled to it and how it¡¯s calculated.
How leave loading works
Leave loading is an extra payment employees receive while on annual leave. It¡¯s typically calculated based on a percentage of the employee¡¯s base salary and is paid in addition to their usual wage.
When is leave loading paid?
Leave loading is paid during pay cycles when paid annual leave is taken or owed. For example, if an employee takes two weeks of annual leave during a fortnightly pay cycle, they will be paid leave loading, and the total amount paid to them will be higher than usual. Similarly, if an employee has outstanding annual leave upon exiting a business, leave loading is typically included in the final pay.
How much is leave loading?
In Australia, the typical leave loading rate is 17.5% of an employee¡¯s base salary. However, the exact amount can vary depending on the award, enterprise agreement or employee contract each individual falls under. Penalty rates for employees who work irregular hours also need to be taken into account when determining how much leave loading is required to pay.
Is it compulsory to pay leave loading?
If leave loading has been specified or included in an employee¡¯s award, enterprise agreement or contract, it is compulsory to pay. If you¡¯re unsure whether an employee is entitled to leave loading, you¡¯ll need to check the aforementioned documentation.
Who is entitled to leave loading?
An employee is entitled to leave loading if:?
- They are covered by a modern award: Most modern awards in Australia require employees to pay a 17.5% leave loading on annual leave.?
- They¡¯re part of an enterprise agreement. Some businesses may have enterprise agreements in place of modern awards, which may include leave loading.?
- It is included in their employee contract. If an employee¡¯s contract states they are to receive leave loading, it is mandatory for the employer to pay it.
Do all employees get leave loading?
As leave loading applies to annual leave, either taken or accrued, an employee must be entitled to annual leave to receive it.?
- Permanent, full-time employees: Full-time employees are generally entitled to four weeks (approx. 152 hours) of paid annual leave per year.?
- Fixed-term contract: In Australia, those on fixed-term contracts generally have the same entitlements as permanent employees.?
- Casual employees: Casual employees do not receive annual leave and, therefore, are not entitled to leave loading. Instead, they receive casual loading to compensate for absent benefits.
Do part-time employees get annual leave loading?
Yes, part-time employees are entitled to leave loading if their award, agreement or contract includes it. They still receive leave loading at 17.5% (or the applicable equivalent) whenever paid annual leave applies. They do receive less leave loading over a yearly period compared to a full-time employee, but this is due to accruing less annual leave rather than the rate itself.
Is leave loading paid on termination of employment?
When employment ends, any outstanding paid annual leave alongside any applicable leave loading should be included in the employee¡¯s final pay. This applies whether an employee resigned or was terminated. Similarly, if an employee has no outstanding annual leave to be paid, they will not be paid leave loading upon exiting the business.
How to calculate leave loading
You can correctly calculate leave loading for an employee in two simple steps.?
Step 1. Determine the employee¡¯s regular pay for the period in question.?
Step 2. Add the percentage of leave loading required to this number.?
Here are two examples of how to calculate leave loading in accordance with an employee¡¯s entitlement.?
Example 1: A standard full-time employee with leave loading?
Scenario: Stephen works 9-5 pm Monday to Friday, equating to a total of 40 hours a week. His hourly rate is $32. He has taken one week of paid annual leave and is entitled to leave loading under his employee award.?
Calculation:?
- Regular weekly pay: 40 hours x $32 = $1,280
- Leave loading (17.5% of weekly pay): $1,280 x 0.175 = $224
- Total pay for the week with leave loading: $1,280 + $224 = $1,504?
The same calculation can be applied to a part-time employee simply by changing the regular weekly pay to the relevant hours.?
Example 2: Irregular hours with weekend penalties?
Scenario: Benazir works varying hours over a 14-day period, with weekend penalty rates. She works 56 hours per fortnight: 32 hours between Monday and Friday at $28 per hour and 24 hours across Saturday and Sunday at $36 per hour (weekend penalty rate). She has taken two weeks of annual leave and is entitled to leave loading under an enterprise agreement.?
Calculation:?
- Regular fortnightly pay: (32 hours x $28) + (24 hours x $36) = $896 + $864 = $1,760
- Leave loading (17.5% of fortnightly pay): $1,760 x 0.175 = $308?
- Total pay for the fortnight with leave loading: $1,760 + $308 = $2,068
Frequently Asked Questions
Is leave loading a penalty rate?
No, leave loading applies to an employee¡¯s annual leave, whereas penalty rates apply when an employee works outside standard hours. For example:?
- An employee is paid leave loading when they take annual leave.?
- An employee is paid penalty rates when they work on a weekend, early morning or late night, etc.
Is super paid on leave loading?
Leave loading generally forms part of an employee¡¯s ordinary time earnings (OTE), which means superannuation contributions are to be paid on it. The only instance where super wouldn¡¯t apply is if leave loading is paid as compensation for lost overtime, which the employer would need to demonstrate.
Is leave loading taxed?
Yes, leave loading is taxed as it is considered part of an employee¡¯s earnings and their total taxable income. How much it¡¯s taxed will depend on whether it is received within normal pay, as a lump sum, or paid out when employment ends.
Can an employer refuse to pay leave loading?
No. If an employer refuses or does not pay leave loading to an employee entitled to it, they are in breach of Fair Work regulations. Failing to comply can potentially lead to financial penalties, orders to pay entitlements, injunctions and even imprisonment.?
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