Guide
Is annual leave loading compulsory in Australia?
Updated
This is the question the internet answers badly. There is no national law giving every Australian employee 17.5% leave loading.
Where the entitlement actually comes from
The Fair Work Ombudsman puts it plainly: annual leave loading is an additional amount that is paid to some employees when they take annual leave. It does not apply to all employees and depends on what their award or enterprise agreement says (Fair Work Ombudsman: payment for annual leave).
The same page states that awards and enterprise agreements can set out a different method of payment for annual leave, and that annual leave loading is paid for annual leave. In other words the instrument creates the entitlement. The National Employment Standards give you the four weeks of annual leave; they do not give you a loading on top.
So where does 17.5% come from?
It is the figure that appears again and again inside awards, and the Fair Work Ombudsman's library article quotes it from several. The article opens by saying that many awards and enterprise agreements can include terms that say employees get an additional payment when they take annual leave, and that the annual leave loading amount and what it is calculated on varies based on the individual award or agreement (Fair Work Ombudsman library: annual leave loading in awards and agreements).
| Award | How the loading works | Source |
|---|---|---|
| Retail Award | Non-shiftworkers get the higher of a 17.5% loading calculated on the employee's minimum hourly rate, or the weekend or shift penalty rates they normally get | Fair Work Ombudsman library article K600323 |
| Security Award | The higher of what the employee would have earned for those ordinary hours had they not been on leave, or the minimum hourly rate plus applicable first aid, supervision or relieving officer allowances plus a 17.5% loading | Fair Work Ombudsman library article K600323 |
| Road Transport Award | Shiftworkers get the higher of 17.5% or the shift loading including relevant weekend penalty rates; day workers get the higher of 17.5% or the relevant weekend penalty rates | Fair Work Ombudsman library article K600323 |
| Hospitality Award | The employer must pay a loading of 17.5% on the amount payable under the National Employment Standards for a period of paid annual leave | Fair Work Ombudsman library article K600323 |
| Storage and Wholesale Award | A shiftworker gets the higher of 17.5% of the minimum pay rate or the shift loading normally received | Fair Work Ombudsman, payment for annual leave |
The Fair Work Ombudsman's own worked example makes the comparison concrete. Alex is a full-time warehouse worker on five afternoon shifts a week under the Storage and Wholesale Award. His entitlement is the higher of 17.5% of his minimum pay rate or the shift loading he normally gets. His afternoon shift loading is 15%, so he is paid his base rate plus 17.5%, because that is higher.
When loading stops applying
The library article lists three situations in which employees may not receive the loading in their award or agreement, because it has already been accounted for.
- Annualised wage arrangements
- Some awards and agreements contain rules allowing an annualised wage to include entitlements such as annual leave loading.
- Individual flexibility arrangements
- All awards must include an IFA clause, and an IFA can be used to vary the effect of certain clauses, which may include annual leave loading.
- Contractual offsetting
- Some employers rely on a contract or separate arrangement to offset above-award pay against entitlements such as loading. The Fair Work Ombudsman advises employers to seek independent advice before doing this and says it cannot advise on specific contractual arrangements.
How to check your own position
- Identify which modern award or enterprise agreement covers your role. The Fair Work Ombudsman's find my award tool does this.
- Read the annual leave clause, not a summary of it. Look for a loading percentage and for the words higher of.
- Check what the loading is calculated on: the award minimum rate, or the amount you would have received had you not been on leave.
- Check whether an annualised wage arrangement, individual flexibility arrangement or contract clause already accounts for it.
- Only then put a number in a calculator.
If you are not covered by an award or a registered agreement, your leave loading is whatever your contract gives you, which may be nothing. That is a lawful outcome, not an underpayment.