Leave loading is a legal entitlement in some industry awards. An award is a legal document setting out minimum rates of pay and employment conditions for a particular industry.
The 17.5% leave loading is a wonderful historic legacy from the glory days of the Labour movement. The theory is when you are on holiday, you don’t have the opportunity to work overtime or do other things that might give you a bit extra in your pay packet each week. The 17.5% extra represents the extra earnings that you didn’t get the chance to earn. Of course, for people who work in most salaried jobs, there isn’t any overtime anyway, so the whole thing is faintly bizarre. This condition is a common feature of modern awards. The source of entitlement to annual leave loading when an employee proceeds on annual leave is usually the employee’s applicable relevant award or agreement or their individual contract of employment.
In the case of shift workers, an employee who would have worked shift work had they not been on leave is paid a 17.5 percent loading or the shift loading including the relevant weekend penalty rates, whichever is the greater, but not both.
Complying with the annual leave terms of a modern award may result in the employer breaching the Fair Work Act. This has happened with payment of annual leave loading on termination of employment. For example, many modern awards provide that an employee receives an additional 17.5% when taking annual leave‚ but no provision regarding payment on termination.
The Fair Work Act (s90(2)) provides that a terminated employee with a period of untaken annual leave must be paid what they would have been paid if they had taken that period of leave, ie. their ordinary rate plus the annual leave loading.
This provision is under the National Employment Standards (NES); consequently, it cannot be excluded by any term in a modern award, agreement, or other instruments that may provide for a lesser benefit.
How do I get leave loading?
If you’re eligible, you will usually receive your leave loading payment at the same time as your annual leave pay. This is usually received in your standard pay, whether this is paid by your employer before, during, or after your time away.
Superannuation is also payable on annual leave loading unless the loading is linked to a lost opportunity to work overtime, based on a ruling by the Australian Taxation Office (ATO).
Do salaried employees get leave loading?
Without an applicable Modern Award or Enterprise Agreement that provides for leave loading, employees are only entitled to their ordinary base rate when taking a period of paid annual leave.
However, if a Modern Award or Enterprise Agreement that provides for leave loading applies to the particular role that a salaried employee performs, then the salaried employee will be entitled to an additional leave loading also.
Employers will often pay a salary to offset the obligation to pay leave loading, as well as various other entitlements such as penalty rates and overtime. However, the employer must expressly state in a written contract of employment that the employee’s salary offsets leave loading. Otherwise, the employer will find it difficult to refute a claim by an employee that he or she is entitled to their ordinary salary plus the prescribed leave loading in the applicable Modern Award or Enterprise Agreement.