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Certain employees receive additional pay, known as leave loading, when taking annual leave to compensate for lost overtime or penalty rates. This guide covers the definition of leave loading, how to calculate it correctly and other key details such as eligibility and payment on termination.
What is Annual Leave Loading?
Annual leave loading is an extra payment that some employees receive on top of their base pay when taking annual leave.
Annual leave loading was originally introduced to make up for lost overtime and penalty rates while employees were on leave. Before it was introduced, workers who regularly earned penalty rates on weekends or nights would lose that income during holidays. Leave loading helps balance that out.
Employers are required to pay leave loading if the employee’s modern award, enterprise agreement or employment contract says so. Other employees only qualify if it’s specifically stated in their contract or company policy.
How Does Annual Leave Loading Work?
Leave loading is usually paid when annual leave is taken, providing an additional payment alongside regular pay for the leave period. It is calculated based on the employee’s base rate of pay, excluding bonuses, overtime or allowances. The loading only applies to the leave being taken, not accrued leave remaining unused. It also does not increase the amount of leave an employee accrues, only the pay they receive while on leave. Leave loading is also paid when an employee wants to cash out (so they get paid instead of taking) their annual leave or upon termination, on top of any unused leave for relevant employees.
Most employees covered by a modern award or enterprise agreement are entitled to annual leave loading. This includes full-time and part-time employees, but generally not casual staff. Award-free or high-income employees only receive leave loading if it’s clearly written in their employment contract or company policy. Always check the relevant award or agreement to confirm who qualifies.
What is the Annual Leave Loading Rate?
The annual leave loading rate depends on the award, enterprise agreement or contract, but the standard annual leave loading percentage is 17.5%. Some awards say employees get paid the higher of either 17.5% loading or their usual weekend or shift penalty rates.
How to Calculate Leave Loading (Step-by-step)
This step-by-step explanation will show you how to calculate leave loading.
- Calculate the base pay for the leave period
Multiply the employee’s base hourly rate by the number of hours of leave.
(Base rate × Leave hours) - Work out the leave loading
Take the base pay and multiply it by the leave loading rate. This is usually 17.5%, unless an award or agreement sets a different rate.
(Base rate × Leave hours × Loading rate) - Add them together
Add the leave loading amount to the base leave pay to get the total payment for the leave period.
(Base rate × Leave hours) + (Base rate × Leave hours × Loading rate)
Example 1 – 17.5% Leave Loading:
Let’s say an employee takes two weeks of annual leave (76 hours) and earns $30 per hour. Their award includes a 17.5% leave loading.
- Base pay: $30 × 76 = $2,280
- Leave loading: $2,280 × 17.5% = $399
- Total leave pay: $2,280 + $399 = $2,679
For the two weeks of annual leave, the employee would be paid $2,679 in total, including the 17.5% loading.
Example 2 – Leave Loading and Penalty Rates:
An employee works Sunday to Thursday at $25/hr, with Sunday paid at $50/hr (200% penalty). They are taking one week of annual leave.
Option 1 - 17.5% Leave Loading:
38 hrs × $25 × 1.175 = $1,116.25
Option 2 - Weekend Loadings:
(30 hrs Mon–Fri × $25) + (8 hrs Sun × $50) = $1,150
Outcome:
The employer pays $1,150, as the weekend penalty calculation gives the higher amount.
Leave loading is normally calculated on the base rate, but employers must compare with usual penalty rates and pay the greater amount.
Leave Loading upon Termination
When an employee leaves (including resignation, termination or dismissal), they must be paid for any unused annual leave. This usually includes annual leave loading if they would have received it while employed. The payment is made in the final pay, which should be issued on or soon after the employee’s last day. Many people think leave loading on annual leave doesn’t apply when employment ends, but under the Fair Work Act, it generally does unless an award, agreement or contract says otherwise. Employees are entitled to payment for any annual leave and loading accrued but not taken during employment.
Holiday Leave Loading vs Annual Leave Loading: Is There a Difference?
There’s no difference between holiday leave loading and annual leave loading; they’re simply two terms for the same entitlement. “Holiday leave loading” is an older, more informal term, while “annual leave loading” is the wording commonly used in the Fair Work Act and modern awards. Some regions or industries may still use “holiday leave loading”, but it refers to the same extra payment employees receive when taking annual leave.
Leave Loading by State: What You Need to Know
Annual leave loading in Australia is generally covered by the national employment standards, but there are some state-specific considerations worth noting.
Leave Loading in NSW
Employees in New South Wales follow the national Fair Work rules for leave loading. Common awards that include leave loading are the Clerks Award, Retail Award and Health Professionals Award. Public sector employees, such as school administrative staff, also receive leave loading under state agreements, usually 17.5% on base pay. Employers should check both the relevant award and enterprise agreements to ensure state-specific compliance. In NSW, some enterprise agreements may include additional conditions, such as alternative payment rates for shift workers or employees on flexible working arrangements, so it’s important to review any agreements alongside the Fair Work standards.
Leave Loading in QLD
Queensland employees are covered by the same national Fair Work standards. Common awards that include leave loading are the Hospitality, Manufacturing and Building and Construction awards. Public sector employees may have specific enterprise agreements detailing leave loading entitlements, but the principle of 17.5% on base pay applies. Private sector employees rely on their award or agreement for entitlement. Employers should also consider industry-specific rules, as certain sectors, like mining and hospitality, may have variations in how leave loading is calculated or applied, particularly for shift work or weekend penalties.
Leave Loading in VIC
Victorian employees also follow the national employment standards for leave loading. Common awards that include leave loading are the Aged Care, Social Services and Cleaning Services awards. State public service employees may have enterprise agreements specifying leave loading entitlements, but generally, the 17.5% rate applies to base pay. Employers should be aware that some private sector roles or contracts may not include leave loading unless stated.
Common Leave Loading Mistakes HR Teams Make
There are a few common errors that HR teams make when managing annual leave loading. Common errors include forgetting to pay it when it’s required under an employee’s award or agreement, especially for part-time staff or during busy payroll periods. Another issue is calculating leave loading on gross pay instead of the employee’s base rate, which can lead to overpayments. Some employers also miss out on paying outstanding leave loading on termination; most awards require it to be included in the final payout for unused leave.
Other mistakes include applying leave loading when the award or agreement doesn’t require it, using the wrong loading rate or overlooking state, industry or company-specific rules. Mistakes can also occur when employees work irregular hours or shifts and the higher option (base rate vs. penalty rate) is not applied. To avoid underpayments and penalties, HR teams should regularly review modern awards, enterprise agreements and payroll calculations, document processes and train staff on leave entitlements.
How HumanX HR Can Help with Leave Loading Compliance
Getting leave loading right is just one part of managing HR and payroll, and it’s easy for small mistakes to turn into costly compliance risks. HumanX HR takes care of the details for you. Our HR specialists understand the pressures of running your business and juggling compliance, payroll, and people because we’ve been there ourselves.
We review your awards, enterprise agreements and contracts to confirm who’s entitled to leave loading and set up automated payroll systems so the correct loading is applied every time. We also ensure final pays and termination payments include the right entitlements, and can audit your past payments to identify and fix any underpayments before they become an issue.
Beyond compliance, we can help you develop clear leave policies and documentation so your team understands their entitlements, and provide ongoing HR advice and support so you can confidently meet Fair Work obligations. Make sure your team is paid correctly and your business avoids costly errors.
Partner with HumanX HR and contact us today on 1300 117 789 for a compliance audit or consultation.
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