Leave loading is one of those Australian employment concepts that confuses employers and employees alike. The short version: most employees covered by a Modern Award are entitled to an extra 17.5% on top of their base pay when they take annual leave. But the details — who qualifies, how to calculate it, and what happens when someone leaves — are where businesses get tripped up.
This guide breaks down leave loading from first principles. We cover the legal basis, the standard 17.5% calculation, the “greater of” test that many employers overlook, termination obligations, and the most common mistakes that lead to underpayment claims. If you employ people in Australia under a Modern Award or enterprise agreement, this is essential reading.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult an employment lawyer for guidance specific to your organisation.
What Is Leave Loading?
Leave loading is an additional payment made on top of an employee’s base rate of pay when they take annual leave. It is typically calculated at 17.5% of the employee’s ordinary base rate.
The concept dates back to the 1970s, when unions argued that workers should not be financially disadvantaged by taking their annual leave. Employees who regularly worked overtime, penalty-rate shifts, or weekends would receive less pay during their holidays than they earned during normal working weeks. Leave loading was introduced to compensate for that gap.
A few key points to understand from the outset:
- Leave loading is not part of the National Employment Standards (NES). The NES establishes the minimum entitlement to paid annual leave (4 weeks for full-time employees), but it does not mandate leave loading.
- Leave loading comes from Modern Awards and enterprise agreements. These instruments sit on top of the NES and may provide additional entitlements, including leave loading.
- Leave loading applies to the base rate of pay only. It is not calculated on allowances, overtime, penalty rates, or superannuation.
- The standard rate is 17.5%, but enterprise agreements can specify a different percentage or a different method of calculation entirely.
In practical terms, leave loading means that an employee who earns $30.00 per hour base rate receives $35.25 per hour ($30.00 + 17.5%) for every hour of annual leave they take.
Who Gets Leave Loading?
Not every Australian employee is entitled to leave loading. Entitlement depends entirely on the industrial instrument that covers the employment relationship.
Employees Covered by a Modern Award
The majority of Modern Awards include a leave loading provision. If your employees fall under one of these awards, you are legally required to pay leave loading when they take annual leave. Common awards that include leave loading provisions are:
- Clerks — Private Sector Award 2020
- Manufacturing and Associated Industries and Occupations Award 2020
- Building and Construction General On-site Award 2020
- General Retail Industry Award 2020
- Hospitality Industry (General) Award 2020 (with specific provisions — see below)
- Health Professionals and Support Services Award 2020
- Social, Community, Home Care and Disability Services Industry Award 2020
- Educational Services (Teachers) Award 2020
Each award has its own clause that sets out the leave loading entitlement, including whether the “greater of” test applies and whether leave loading is payable on termination. You must check the specific wording of the applicable award.
Employees Covered by an Enterprise Agreement
If your workplace is covered by an enterprise agreement, the agreement will specify whether leave loading applies and at what rate. Enterprise agreements can provide for a higher or lower loading than the standard 17.5%, or they can specify a completely different method of calculating annual leave pay. The agreement cannot, however, reduce overall entitlements below the relevant Modern Award or the NES.
Award-Free Employees
Employees who are not covered by any Modern Award or enterprise agreement — typically senior managers and high-income professionals earning above the high-income threshold — are only entitled to leave loading if their individual employment contract includes it. There is no automatic entitlement for award-free employees.
Casual Employees
Casual employees do not receive leave loading. This is straightforward: casual employees are not entitled to paid annual leave under the NES (they receive a casual loading instead), so there is no annual leave payment on which to apply leave loading.
How to Calculate Leave Loading
The Basic Formula
The standard leave loading calculation is simple:
Annual leave pay = base rate of pay + 17.5% leave loading
Or expressed differently:
Leave loading amount = base rate of pay x 0.175
Calculate leave loading instantly. Use our free Leave Loading Calculator to calculate the 17.5% loading on any annual leave period, including the “greater of” comparison for shift workers.
Worked Example 1: Full-Time Employee on a Flat Rate
Sarah is a full-time administrative employee covered by the Clerks Award. Her ordinary base rate is $1,200 per week (based on 38 ordinary hours at $31.58 per hour).
When Sarah takes one week of annual leave:
| Component | Amount |
|---|---|
| Base annual leave pay | $1,200.00 |
| Leave loading (17.5%) | $210.00 |
| Total annual leave pay | $1,410.00 |
Sarah receives $1,410.00 for each week of annual leave, compared to $1,200.00 for a normal working week. The $210.00 loading is the additional payment.
The “Greater Of” Test
This is where leave loading calculations become significantly more complex, and where many employers make costly mistakes.
Several Modern Awards do not simply require employers to pay the 17.5% loading. Instead, they require employers to pay the greater of:
- Base rate of pay + 17.5% leave loading, OR
- The amount the employee would have earned if they had worked their normal roster during the leave period (including shift penalties, weekend rates, and other loadings — but generally excluding overtime)
This test exists because some employees regularly earn well above their base rate due to penalty rates. For these workers, the 17.5% loading may not adequately compensate for lost penalties. The “greater of” test ensures they receive whichever amount is higher.
Worked Example 2: The “Greater Of” Test in Action
James is a full-time warehouse employee covered by the Manufacturing Award. His ordinary base rate is $1,000 per week. However, James regularly works a rotating roster that includes Saturday and Sunday shifts. With penalty rates, his normal weekly earnings look like this:
| Day | Hours | Rate | Amount |
|---|---|---|---|
| Monday to Friday | 30 hours | $26.32/hr (base) | $789.60 |
| Saturday | 4 hours | $34.22/hr (130% of base) | $136.88 |
| Sunday | 4 hours | $39.47/hr (150% of base) | $157.88 |
| Weekly total with penalties | 38 hours | $1,084.36 |
Now let us compare the two options under the “greater of” test:
Option A — Base rate + 17.5% loading: $1,000.00 + $175.00 = $1,175.00
Option B — What James would have earned if he had worked: $1,084.36
In this case, Option A ($1,175.00) is greater than Option B ($1,084.36), so James receives $1,175.00 for each week of annual leave.
Worked Example 3: When Penalties Exceed the Loading
Now consider Priya, who works under the same award but on a different roster with heavier weekend loading.
| Day | Hours | Rate | Amount |
|---|---|---|---|
| Monday to Thursday | 22 hours | $28.95/hr (base) | $636.90 |
| Saturday | 8 hours | $37.64/hr (130% of base) | $301.12 |
| Sunday | 8 hours | $43.43/hr (150% of base) | $347.44 |
| Weekly total with penalties | 38 hours | $1,285.46 |
Priya’s base rate for 38 hours is $1,100.10 per week.
Option A — Base rate + 17.5% loading: $1,100.10 + $192.52 = $1,292.62
Option B — What Priya would have earned if she had worked: $1,285.46
Here, Option A ($1,292.62) is still slightly higher. But if Priya’s roster included additional public holiday shifts or higher penalty rates, Option B could easily exceed Option A. The point is that employers must run this comparison every time a relevant employee takes leave — not assume that the 17.5% loading always wins.
Enterprise Agreement Variations
Enterprise agreements can modify the leave loading calculation in several ways:
- Specifying a loading percentage other than 17.5%
- Removing the “greater of” test entirely and paying a flat loading
- Including or excluding specific penalty categories from the comparison
- Capping the loading at a certain dollar amount per week
Always check the specific terms of any enterprise agreement that applies to your workforce.
Leave Loading on Termination
This is where many Australian employers get caught out. When employment ends — whether by resignation, dismissal, redundancy, or end of contract — accrued but untaken annual leave must be paid out. Under most Modern Awards, leave loading must also be paid on the accrued leave balance at termination.
This means the termination payout is 17.5% higher than employers who forget about leave loading expect it to be.
Worked Example 4: Termination Payout With Leave Loading
Tom is leaving his role. He has 3.5 weeks of accrued annual leave and his base rate is $1,400 per week. His applicable Modern Award requires leave loading to be paid on termination.
| Component | Calculation | Amount |
|---|---|---|
| Accrued annual leave (base) | 3.5 weeks x $1,400 | $4,900.00 |
| Leave loading on accrued leave | $4,900.00 x 17.5% | $857.50 |
| Total termination leave payout | $5,757.50 |
Without leave loading, Tom’s payout would have been $4,900.00. The $857.50 difference is significant — and underpaying it is an underpayment of wages.
When Is Leave Loading NOT Payable on Termination?
Some Modern Awards explicitly state that leave loading is not payable on termination. For example, certain awards distinguish between leave taken during employment and leave paid out on termination, and only require loading on the former.
If the applicable award is silent on whether leave loading is payable on termination, the default position established by the Fair Work Commission is that it should be paid. The reasoning is that leave loading is an entitlement that attaches to the annual leave itself, and paying out the leave without the loading would result in the employee receiving less than their full entitlement.
The safest approach is to check the specific termination clause in the relevant Modern Award or enterprise agreement. If there is any ambiguity, seek legal advice or pay the loading to avoid the risk of an underpayment claim.
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Leave Loading and Part-Time Employees
Part-time employees who are covered by a relevant Modern Award receive leave loading on the same basis as full-time employees — applied to their pro-rated annual leave entitlement.
How It Works
A part-time employee’s annual leave accrues based on their ordinary hours of work. The leave loading is then calculated on the base rate for those ordinary hours.
Worked Example 5: Part-Time Leave Loading
Mei works part-time, 20 ordinary hours per week, at a base rate of $29.00 per hour. She is covered by the Clerks Award.
| Component | Calculation | Amount |
|---|---|---|
| Weekly base pay | 20 hours x $29.00 | $580.00 |
| Leave loading (17.5%) | $580.00 x 0.175 | $101.50 |
| Total weekly annual leave pay | $681.50 |
When Mei takes a week of annual leave, she receives $681.50 instead of her usual $580.00. The “greater of” test applies to part-time employees in exactly the same way as it does to full-time employees — if Mei regularly works penalty-rate shifts, her employer must compare the two options and pay the higher amount.
Common Mistakes Employers Make With Leave Loading
Based on Fair Work Ombudsman audit data and our experience working with Australian employers, these are the most frequent leave loading errors:
1. Not Paying Leave Loading at All
This is the most basic and most common mistake. Many employers — particularly small businesses — are simply unaware that their Modern Award requires leave loading. They pay annual leave at the base rate and nothing more. This is an underpayment of wages and can result in back-pay claims, penalties, and interest.
2. Not Applying the “Greater Of” Test
Even employers who know about leave loading often apply the flat 17.5% without checking whether the employee would have earned more had they worked. For shift workers with regular penalty rates, this can result in consistent underpayment over years of employment.
3. Not Paying Leave Loading on Termination
This catches employers by surprise because it inflates termination payouts beyond what they budgeted. When an employee with a large accrued leave balance departs, the leave loading on that balance can add up to thousands of dollars.
4. Applying Leave Loading to Casuals
Some payroll systems are misconfigured to apply leave loading to casual employees. Since casuals do not receive paid annual leave, applying leave loading to them is incorrect — and it creates reconciliation problems.
5. Using Total Remuneration Instead of Base Rate
Leave loading is calculated on the base rate of pay only. It should not be calculated on allowances, overtime, bonuses, or superannuation contributions. Using total remuneration inflates the loading amount and creates inaccurate records.
6. Not Updating Calculations When Rosters Change
If an employee’s working pattern changes — for example, they move from a Monday-to-Friday roster to a rotating shift pattern that includes weekends — the “greater of” test comparison must reflect their current roster, not a historical one. Employers who set and forget their leave loading calculations risk underpaying or overpaying when circumstances change.
How Leave Balance Helps
Managing leave loading manually across multiple Modern Awards and enterprise agreements is time-consuming and error-prone. Leave Balance is purpose-built to handle the complexity of Australian leave entitlements.
- Configure leave loading percentages per leave policy. Set up different loading rates for different awards and enterprise agreements, so each employee group is calculated correctly from day one.
- Separate tracking of base leave pay and loading amounts. Your reporting distinguishes between the base annual leave cost and the leave loading component, giving you clear visibility for payroll reconciliation and auditing.
- Policy-level configuration for different awards and enterprise agreements. Create as many leave policies as you need — one per award, one per enterprise agreement, one per employee classification — with the correct loading rules applied automatically.
- Reporting that shows leave costs including loading. See the full cost of annual leave across your organisation, broken down by team, department, or award coverage. This data is essential for budgeting and compliance reporting.
- AUD $29/month flat, unlimited employees and policies. No per-employee pricing that punishes you for growing your team. One flat rate covers your entire organisation.
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