Annual leave loading on termination

Public news

Historically, members operating under the Vehicle Manufacturing Repair Services and Retail Award had no obligation to pay an employee annual leave loading on outstanding leave entitlements on termination. The Award clearly indicates in clause 29.11 that the payment does not apply to untaken leave on termination.However, since the establishment of the modern award and the National Employment Standards, there has been much confusion on this issue.

A Federal Court decision a few years ago actually resolved the debate on this issue. The Court ruled that the National Employment Standards (NES) require payment of annual leave loading to terminated employees, where a loading would have been paid if leave was actually taken. So if an employee had previously been paid loading during periods of annual leave, it would also need to be paid at termination on any untaken leave. In other words, the NES overrides the terms of the Award.

It is possible however for an employer to not be required to pay annual leave loading. An employer can absorb annual leave loading into any over-award rate that they negotiate with a new employee.

For example, under the Award a full-time tradesperson would be entitled to approximately 30 cents per hour extra to cover the loading. So members who are prepared to pay over-award rates are able to 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 this.

The simplest way that this can be done is via the inclusion of an offsetting clause in an employee’s contract. An example of an offsetting clause is below:

“You agree that where your pay exceeds applicable Award rates of pay, as varied from time to time, any amount paid in excess of the Award rates of pay to which you would ordinarily be entitled, may be offset against any underpayment or non-payment of other applicable Award entitlements, including, but not limited to, overtime rates, penalty rates, allowances or applicable loadings.”

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 or anything else in regards to Annual Leave Loading should contact the WR Department for advice and assistance on 8291 2000 or via email by clicking here.