Annual Leave Loading

Public news

With the Christmas break fast approaching, many businesses will have a period of shut down in which employees will often be directed to use their annual leave, if sufficiently accrued and agreed. As such, it is important to note during this time the rules regarding the payment of annual leave loading.

Annual leave loading is a top-up payment that is present in most modern awards, that allows for an additional payment of 17.5% on top of the employees base rate of pay when taking annual leave.

Annual leave loading however is not something that an employee will automatically be entitled to and whether or not an employee will be entitled to leave loading will depend on the employees wage rate, employment status, contract etc.

Below are the most likely categories an employee will fall into when determining whether or not leave loading entitlements are payable:

  1. Employees paid at award rate: Where a full-time or part-time employee is paid at the award rate they will be entitled to have annual leave loading included on the annual leave payment that they receive.
  2. Employees paid above award rate: An employee who is paid above award rate may or may not be entitled to be paid annual leave loading. If an employee is paid above award rate it is possible to offset such entitlements as annual leave loading due to them being paid at a higher rate. In order to do so however there will need to be an appropriate offsetting agreement or clause in the employee’s contract or letter of appointment specifying this. Where an employee has been paid loading in the past they must then continue to be paid loading regardless of whether or not they are being paid above award rate.
  3. Casual Employees: Casual employees will not be entitled to annual leave or leave loading as a casual worker is paid a 25% loading on their wages in order to offset leave entitlements. During this period of closure a casual employee will be on unpaid leave.

In addition to the above, it is also important for all members to know that if an employee is entitled to annual leave loading when they take their annual leave, they will also be entitled to this loading when being paid out their annual leave via agreement or on leaving their employment.

The reasoning for leave loading being payable upon termination can be found in section 90(2) of the Fair Work Act 2009 (Cth) which states as follows:

(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

While annual leave loading is not specifically mentioned in the Fair Work Act, this section has the effect of meaning that where an employee is paid out their annual leave on termination, they need to be paid the same amount as if they were physically taking the leave. So if an employee was entitled to the loading during their employment, they will need to have this included on any annual leave payout.

If you have any enquiries relating to annual leave or any other leave issues please contact the MTA Workplace Relations team on 8291 2000 or email us by clicking the following address: wr@mtasant.com.au.