Is Annual Leave Loading payable on termination?

Public news

The Workplace Relations Department of the MTA receives ongoing enquiries regarding the payment of annual leave loading on termination – this issue continues to be confusing for members. This article is to assist members to better understand their legal obligations on this issue under the Vehicle Repair, Services & Retail Award 2020 and the Clerks – Private Sector Award 2020.An alternative option is also available for members to consider, which can result in members not having to worry about this payment at all.

Historically, members applying the terms of the Vehicle Award had no obligation to pay an employee annual leave loading on outstanding or untaken leave on termination. The Award clearly indicated that the leave loading payment did not apply to the payment of untaken leave on termination.However, with the establishment of modern Awards and the National Employment Standards (NES), there has been some confusion on this issue. The Vehicle Award continues to contain a provision that does not require the payment of leave loading on untaken leave on termination, whereas the NES appears to prescribe that the payment may be required.

A Federal Court decision which was subsequently confirmed by a decision of the Full Bench of the Federal Court, has resolved and clarified the correct interpretation on this issue. The Full Court ruled that the National Employment Standards (NES) requires payment of annual leave loading to terminated employees, if the loading would have been paid had the employee taken the untaken leave at the time. It means that if an employee had previously been paid leave loading during previous periods of annual leave, it would also need to be paid at termination on any untaken leave. In other words, the terms of the Award are over ridden by the terms of the NES.

An alternative option for members to consider is to absorb the annual leave loading payment into any over-award rate that you negotiate with a new employee. For example, under the Vehicle Award a full-time tradesperson would be entitled to approximately $604 per annum (or .31 cents/hour) for their leave loading.So members who are prepared to pay over-award rates can in fact absorb the loading component into the employee’s over- award hourly rate and never have to worry about paying annual leave loading to that employee. However, proper documentation must be in place to confirm that understanding.

While this option is readily available for members in relation to the engagement of new employees, existing employees who have already received annual leave loading payments previously will need to be dealt with differently. Members interested in discussing this option further should contact the WR Department for advice and assistance on 8291 2000 or at wr@mtasant.com.au.