Many awards and enterprise agreements can include terms that say employees get an additional payment when they take annual leave. This is known as annual leave loading. 

The annual leave loading amount and what it’s calculated on varies based on the individual award or agreement.

This article looks at some of the ways annual leave loading is calculated in awards.

How annual leave loading is calculated in awards

Annual leave loading clauses in awards can vary from award to award. The examples below show common ways that annual leave loading is calculated, but it’s not a full list of every way annual leave loading is calculated in awards. Check your award for details.

Comparison with penalty rates

Many awards say that the annual leave loading amount needs to be compared with certain penalty rates to determine which amount the employee is paid.

An example of this is in the Retail Award. The Retail Award says that for a non-shiftworker employee they get paid the higher of:

• a 17.5% loading calculated on the employee's minimum hourly rate, or
• the weekend or shift penalty rates the employee normally gets.

How these types of comparisons operate will vary between awards. Check your award for details.

Comparing annual leave payment amounts

Some awards require employees to be paid the higher of specified annual leave payment amounts when they take annual leave.

These awards can also set out what must be included in each annual leave payment amount, such as annual leave loading or certain allowances.

For example, the Security Award says employees get paid the higher of:

• the amount the employee would have earned during that period for those ordinary hours had they not been on leave, or
• the employee's minimum hourly rate for those hours together with any applicable first aid allowance, supervision allowance or relieving officer allowance plus a loading of 17.5%.

What's included in each annual leave payment amount varies between awards. Check your award for details.

Shiftworkers

Some awards have separate annual leave loading rules for employees who would have worked day work or shiftwork if they hadn’t been on annual leave. 

For example, the Road Transport Award says the annual leave loading for employees who would have worked shiftwork get paid the higher of:

• 17.5%, or
• the shift loading, including relevant weekend penalty rates

The Road Transport Award has a different rule for employees who would have worked day work had they not been on annual leave. These employees get paid the higher of 17.5% or the relevant weekend penalty rates. 

Check your award for details.

Annual leave loading and above award rates of pay

An employer may choose to pay an employee a higher rate of pay than the rate in the award. We refer to this as an above award rate.

Whether the employee gets the annual leave loading paid on the above award rate or the rate of pay in the award depends on the wording in the award.

For example, it’s paid on the above award rate if the award says that annual leave loading is an additional payment calculated on the amount the employee would have received for working ordinary time hours had they not been on leave.

Annual leave loading may also be calculated on the above award rate if the award says it is calculated on the amount payable to the employee under the National Employment Standards (NES) for a period of paid annual leave. The amount payable under the NES can include a higher rate of pay if that higher rate is the employee’s base rate of pay for their ordinary hours.

Example

Caydence is a full-time forklift driver under the Building and Construction Award. She doesn’t work shiftwork.

Caydence is paid a rate that is higher than her award rate.

Caydence checks her award and sees that it says:

• annual leave is paid at the amount the employee would have received for working ordinary time hours had they not been on leave, and
• annual leave loading is an additional payment of 17.5% calculated on that amount.

This means Caydence is still entitled to be paid annual leave loading as well as her above award rate of pay. Her annual leave loading will be calculated on her above award rate.

Example

Johnny is a part-time kitchen hand under the Hospitality Award. He doesn't work shiftwork.

Johnny is paid a rate that is higher than his relevant award rate.

The Hospitality Award says that an employer must pay an employee a loading of 17.5% on the amount payable to the employee under the NES for a period of paid annual leave.

The amount payable under the NES can include a higher rate of pay if that higher rate is Johnny’s base rate of pay for his ordinary hours.

This means that Johnny is entitled to be paid annual leave loading as well as his above award rate of pay. His annual leave loading will be calculated on this above award rate if that rate is his base rate of pay for his ordinary hours.

However, some awards say that annual leave loading is calculated on the relevant minimum rate of pay under the award. In those cases, the employee’s annual leave loading is calculated on the award rate rather than their above award rate of pay.

How annual leave loading interacts with an above award rate of pay will depend on the specific wording of the annual leave loading clause in the award or agreement. Check your award for details.

Annual leave loading at the end of employment

When employment ends, the employee’s unused accumulated annual leave is paid out as if they had taken the leave during employment.

This is calculated the same way as during employment and includes any annual leave loading, penalty rates or shift loading that would have applied.

See Final pay for more information.

When annual leave loading may no longer apply

Employees may not receive the annual leave loading payment in their award or enterprise agreement if it’s included in:

• an annualised wage arrangement permitted under their award or enterprise agreement, or
• a contractual offsetting arrangement.

Annualised wage arrangements

Some awards and enterprise agreements contain specific rules relating to employers and employees entering into an annualised wage arrangement. These rules may allow an annualised wage to include entitlements such as annual leave loading.

Visit Annualised wages to find out about annualised wage arrangements.

Individual flexibility arrangements

All awards have to include an individual flexibility arrangement (IFA) clause. In awards an IFA can be used to vary the effect of certain clauses, which may include annual leave loading.

Visit Individual flexibility arrangements to find out more.

Contractual offsetting arrangements

Some employers may try to rely on an employment contract or a separate arrangement to offset above-award or agreement pay rates against award or agreement entitlements, such as annual leave loading. This is known as a contractual offsetting arrangement.

Tip:

Employers should seek seek independent advice before attempting to enter into contractual offsetting arrangements to ensure that they comply with all relevant obligations under the FW Act and any applicable award or enterprise agreement. The Fair Work Ombudsman (FWO) cannot advise on specific contractual arrangements or agreements.

For more information on contractual offsetting arrangements, see Offsetting and record-keeping for salaried employees.