Learning how to calculate annual leave loading is a common challenge for Australian business owners and payroll teams. Annual leave loading is an extra payment employees may be entitled to when taking paid annual leave, designed to compensate for potential extra expenses incurred or lost penalty rates during holidays. Getting this right is important for compliance, employee trust, and smooth payroll processing. In this article, we’ll break down what leave loading is, when it applies, and how to correctly calculate leave loading using clear, practical examples.
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What Is Leave Loading and Why Does It Matter?
Annual leave loading, sometimes called holiday loading, is an extra payment employees receive on top of their usual pay when taking annual leave. This extra payment is usually set at 17.5% of the employee’s minimum weekly pay, but the exact rate of pay and entitlement depends on the employee’s award or registered agreement, enterprise agreement, or employment contract.
The idea behind paid annual leave loading is to make up for the fact that employees might miss out on weekend penalty rates or other allowances while on leave. Not every employee is entitled to annual leave loading—whether it applies depends on their award agreement or contract. Most modern awards and many enterprise agreements include a leave loading payment, but some do not.
When Employees Are Entitled to Leave Loading
Employees covered by an award or registered agreement, or those whose employment contract specifically provides for leave loading, are generally entitled to leave loading. This includes most full time employees and part time employees, but not casuals, as they usually receive a higher all inclusive hourly rate instead of leave entitlements.
The National Employment Standards (NES) guarantee a minimum of four weeks paid annual leave for full time employees and part time employees (with more for some shift workers), but the NES does not require annual leave loading. That means you’ll need to check each employee’s award agreement or contract to see if they are entitled to leave loading.
How to Correctly Calculate Leave Loading
Calculating leave loading is straightforward once you know the employee’s weekly pay and the applicable annual leave loading rate. The most common loading rate is 17.5%, but some awards or agreements may set a different rate. Here’s how to calculate leave loading step by step.
For most employees, annual leave loading is calculated as:
Minimum Weekly Pay × Loading Rate = Leave Loading Payment
Let’s look at some practical examples to show how leave loading is calculated for different scenarios.
Example 1: Standard Full Time Employee
Suppose Alex is a full time employee with a minimum weekly pay of $1,200. Under his modern award, he is entitled to annual leave loading at 17.5%. If Alex takes two weeks paid annual leave, his leave loading is:
Two weeks minimum weekly pay: $1,200 × 2 = $2,400
Leave loading payment: $2,400 × 0.175 = $420
So, Alex receives $2,400 as annual leave pay plus $420 as annual leave loading, for a total of $2,820 for his two weeks off.
Example 2: Part Time Employee
Emma works three days a week at a minimum hourly rate of $30, working 24 hours per week. Her minimum weekly pay is $720. If she takes one week of paid annual leave, her leave loading is:
One week minimum weekly pay: $720
Leave loading payment: $720 × 0.175 = $126
Emma’s total for her week of annual leave is $720 plus $126, making $846.
Example 3: Shift Workers and Penalty Rates
Shift workers often receive shift loading or weekend penalty rates. Many awards say that when a shift worker takes annual leave, they should receive either annual leave loading or their usual pay plus weekend penalties—whichever is higher.
Let’s say Sam is a shift worker with a minimum weekly pay of $1,000, but usually earns $1,100 per week due to weekend penalty rates. If Sam takes one week of annual leave:
Minimum weekly pay plus leave loading: $1,000 × 1.175 = $1,175
Usual pay plus weekend penalties: $1,100
Sam would get $1,175 for his week of annual leave, as this is higher than his usual pay plus weekend penalties.
Leave Loading on Termination
When employment ends, any remaining unused annual leave must be paid out, and this includes applicable annual leave loading. The same annual leave pay rules apply whether the employee resigns, is made redundant, or is dismissed. This ensures employees receive the same benefit as if they had taken the leave while still employed.
For example, if Lisa has 80 hours of accrued annual leave at a minimum hourly rate of $32, her annual leave pay is $2,560. The leave loading paid on termination is $2,560 × 0.175 = $448, for a total of $3,008 in her final pay.
Handling Leave Loading in Payroll
Leave loading payments are treated as ordinary income and are taxed the same as other wage payments. This means leave loading taxed through Pay As You Go (PAYG) withholding, and you need to include annual leave loading payments in your Single Touch Payroll (STP) reporting.
For superannuation, annual leave loading is generally included in the employee’s ordinary time earnings unless you can show that it is paid only to compensate for lost overtime. Most businesses will need to pay super on annual leave loading.
It’s important to use your payroll system or an annual leave loading calculator to make sure you pay leave loading correctly and keep accurate records. This helps you stay compliant and avoid disputes.
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Common Questions About Annual Leave Loading
We often hear from clients with questions about leave loading. Here are some of the most common:
Is leave loading compulsory?
No, annual leave loading is only paid if it’s required by an award, enterprise agreement, or employment contract.
How do I know if my employees are entitled to leave loading?
Check the employee’s award or registered agreement, or their contract. Most modern awards include leave loading, but not all.
Do I pay leave loading on unused annual leave when employment ends?
Yes, leave loading is paid on termination for all accrued annual leave.
Is leave loading taxed?
Yes, leave loading is taxed like normal pay.
Do I pay super on leave loading?
Usually yes, unless you can show it’s only for lost overtime.
Tips for Employers: Getting Leave Loading Right
Making sure you correctly calculate leave loading helps you avoid underpayments and keeps your team happy. Here are a few tips:
Always check the employee’s award, enterprise agreement, or contract for leave loading entitlements and rates.
Use a reliable payroll system or annual leave loading calculator to work out payments.
Pay leave loading on all paid annual leave and on any unused annual leave paid out when employment ends.
Keep clear records of how you calculate leave loading payments.
If you’re unsure, seek advice from a payroll expert or accountant familiar with the national workplace relations system.
Conclusion: Take the Stress Out of Leave Loading
Understanding how to calculate annual leave loading is an important part of managing payroll and supporting your employees. By following the steps outlined here and checking each employee’s award agreement or contract, you can pay leave loading accurately and confidently.
If you’re looking for support with payroll, or want to make sure your leave loading payments are correct, our team is here to help. We specialise in helping businesses like yours manage payroll, reduce stress, and stay compliant with the latest requirements. Reach out to us for friendly, expert advice—let’s make payroll easy together.
