Annual Leave Loading

Annual Leave Loading is an additional payment – typically 17.5% – paid on top of an Australian employee’s base rate of pay when they take paid annual leave. Not a National Employment Standard; applies where required by modern awards, enterprise agreements, or employment contracts. Also called: leave loading, holiday loading, 17.5% loading.

Image showing the meaning of Annual Leave Loading

Where leave loading comes from and who is entitled

Annual leave loading entered the Australian industrial relations landscape in the 1970s, when many workers relied on overtime, penalty rates, and shift loadings as a substantial part of regular income. When those workers took annual leave, they lost access to these additional payments and experienced a material drop in take-home pay. Leave loading was introduced through awards to bridge that gap and encourage workers to actually take their leave rather than working through it.

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Today, leave loading applies only where one of the following sources requires it:

Modern awards. Most modern awards include leave loading at 17.5%, with some variations. The Manufacturing and Associated Industries Award, Clerks Private Sector Award, and General Retail Industry Award all include it for relevant classifications.
Enterprise agreements. Negotiated agreements may include leave loading at 17.5% or at a different rate.
Employment contracts. Individual contracts may include leave loading even where the underlying award or agreement does not require it.
Annualised salary arrangements. Some annualised salaries explicitly include the value of leave loading in the base figure; in such cases the loading should not be paid additionally on top of leave pay.

Permanent and fixed-term employees covered by award-required loading are entitled to it. Casual employees do not receive leave loading because they receive casual loading (typically 25% on every hour worked) instead, and they do not accrue annual leave entitlements.

How to calculate annual leave loading

The standard calculation is 17.5% of the employee’s base rate of pay for the period of annual leave taken:

Identify the base rate. The employee’s ordinary hourly rate or weekly wage at the time of taking leave, excluding overtime, allowances not specifically included by the award, and one-off bonuses.
Apply the loading percentage. 17.5% is the standard. Some awards specify a different percentage – always check the applicable instrument.
Multiply by leave hours taken. Leave loading applies only to hours of annual leave actually taken (or paid out on termination). It does not apply to personal/carer’s leave, sick leave, or compassionate leave.
Add to the ordinary leave payment. The total leave payment is the base rate plus the 17.5% loading.

Worked example: An employee with a base weekly wage of $1,200 takes one week of annual leave. Ordinary leave pay is $1,200. Leave loading is $1,200 x 17.5% = $210. Total pay for the leave week is $1,410.

For shift workers, many awards apply a “greater of” test: the employee receives the higher of either 17.5% loading or the actual shift loadings/penalty rates they would have earned during the leave period. Applying a flat 17.5% to shift workers when actual penalty rates would have been higher underpays the employee.

Annual leave loading vs casual loading

These two Australian compensation premiums are often confused. They apply to different employment types and serve different purposes:

Dimension	Annual leave loading	Casual loading
Recipient	Permanent employees taking annual leave	Casual employees on every hour worked
Standard rate	17.5% of base rate	25% of base rate (varies by award)
When paid	Only when annual leave is taken or paid out	On every hour worked
Purpose	Compensate for lost overtime/penalties during leave	Compensate for absence of leave, notice, and redundancy entitlements
Statutory basis	Modern awards, agreements, contracts – not NES	Modern awards, agreements

A worker cannot receive both. Casual employees do not accrue annual leave, so they cannot receive leave loading.

Leave loading on termination

Fair Work Act section 90(2) requires that when employment ends, an employee must be paid what they would have been paid had they taken the period of leave. The Fair Work Ombudsman has clarified that this includes leave loading where the applicable award, agreement, or contract requires it during leave.

Practical implications:

Resignation, dismissal, or redundancy. Accrued but unused annual leave is paid out at termination. If leave loading would have been paid during leave, it must be paid on the termination payout.
Pro-rata leave. Where pro-rata leave entitlement is paid out at termination, leave loading is calculated on the pro-rata amount.

Tax treatment of leave loading

Leave loading is generally treated as ordinary income for Australian tax purposes and is subject to PAYG withholding in the same manner as base pay. There is a limited tax-free threshold of up to $320 per year for leave loading that demonstrably relates to a notional loss of opportunity to work overtime. The application is narrow and most modern award employees do not qualify for the concession.

Configuring leave loading in payroll

Australian payroll systems including Xero, MYOB, Employment Hero, KeyPay, and Workday all support leave loading configuration, but the settings must be applied correctly per award:

Identify the applicable award per employee. Use the Fair Work Ombudsman’s Find My Award tool to confirm coverage.
Confirm whether leave loading applies. Read the leave clause of the applicable instrument. Most modern awards include 17.5% loading; some do not.
Configure the payroll system. Enable leave loading per pay category. Verify the calculation runs on base rate, not gross earnings.
Test with an actual leave payment. Run a test payslip for an employee taking leave to verify the loading appears correctly.
Audit termination payments. Termination payouts including accrued leave must include leave loading where applicable.

Underpayment of leave loading is recoverable for up to six years under the Fair Work Act. Liability accumulates per employee per pay period, making systematic configuration errors expensive once discovered.

When leave loading doesn’t apply

Senior staff above award coverage. Many executive, professional, and managerial employees are not covered by any modern award and have no contractual leave loading provision.
Annualised salary arrangements that incorporate loading. Where the employment contract explicitly states that the annualised salary includes the value of leave loading, separate loading payment is not required.
Casual employees. Casuals receive casual loading on every hour worked and do not accrue annual leave.

Frequently asked questions

Annual leave loading is an additional payment – typically 17.5% – paid on top of an Australian employee’s base rate of pay when they take paid annual leave. It originated in the 1970s to compensate shift workers and award-covered staff for the loss of penalty rates and overtime they would have earned during leave. It applies where required by modern awards, enterprise agreements, or employment contracts.

Not universally. Leave loading is mandatory only where the applicable modern award, enterprise agreement, or employment contract requires it. Most modern awards include 17.5% leave loading, but some do not. Senior staff above award coverage typically do not receive leave loading unless their contract provides for it.

The standard calculation is 17.5% of the employee’s base rate of pay for the period of annual leave taken. For a $1,200 weekly base wage and one week of leave, the loading is $1,200 x 17.5% = $210. Total pay for the leave week is $1,410. For shift workers, many awards apply a “greater of” test against the actual penalty rates that would have been earned.

Yes, where the applicable award, agreement, or contract requires loading during leave. Fair Work Act section 90(2) requires that the termination payout for accrued leave include what the employee would have been paid had they taken the leave. Fair Work Ombudsman guidance has confirmed this applies even where awards include clauses purporting to exclude loading on dismissal for misconduct.

No. Casual employees receive casual loading (typically 25% on every hour worked) instead, and they do not accrue annual leave. The two loadings are different entitlements applying to different employment types. A worker cannot receive both.

Generally yes, as ordinary income subject to PAYG withholding. A limited ATO concession provides up to $320 per year tax-free if the loading demonstrably relates to a notional loss of overtime opportunity, but this applies narrowly. Most modern award employees do not qualify for the concession.

It originated in the 1970s when many Australian workers relied on overtime, penalty rates, and shift loadings as regular income. Taking annual leave meant losing this income. The 17.5% rate was set as a rough average of the additional earnings lost during a typical leave period, calibrated to encourage workers to take leave rather than work through it.

Underpayment is recoverable for up to six years under the Fair Work Act. Liability accumulates per employee per pay period, and systematic underpayment across an employer with many award-covered employees can result in multi-million-dollar back-pay orders from the Fair Work Ombudsman.

Only if the annualised salary does not explicitly incorporate the value of leave loading. Many annualised salary arrangements include the loading in the base figure, in which case separate payment is not required. The arrangement must be clearly documented in the employment contract; ambiguous arrangements default to the loading being payable in addition to the base salary.