Leave loading is an additional payment made to an employee on top of their ordinary rate of pay when they take annual leave. In Australia, leave loading is commonly set at 17.5% under Modern Awards and enterprise agreements, intended to compensate employees for the loss of overtime, penalty rates and other loadings they would have earned if they had continued working. Leave loading is a distinct Australian entitlement and does not have a direct equivalent in the UK or US.
Key Takeaways
- Leave loading is an additional payment (typically 17.5%) paid on top of ordinary pay during annual leave in Australia
- It compensates employees for lost overtime, penalty rates and shift loadings during the leave period
- Not all Modern Awards require leave loading; employers must check the applicable award for their employees
What Leave Loading Means for Employers
Leave loading adds to the cost of annual leave. For an employee earning $80,000 per year, 17.5% leave loading on four weeks of annual leave represents an additional $2,685 per year in labour costs. Across a large workforce, this is a material expense that must be budgeted and accounted for.
The purpose of leave loading is to ensure that employees are not financially disadvantaged by taking leave. Without leave loading, an employee who regularly earns overtime and penalty rates would receive a lower rate of pay during leave than they would if they continued working. Leave loading partially offsets this difference.
Leave loading is calculated on the employee’s ordinary time earnings during the leave period. It is not paid on public holidays that fall during annual leave, as the employee would not have worked on those days anyway. The Fair Work Commission and Fair Work Ombudsman have confirmed this position.
Not all Modern Awards require leave loading. The Clerks—Private Sector Award 2020 includes leave loading, but the General Retail Industry Award 2020 does not. Employers must check the applicable award for each employee.
Leave Loading Rules by Region
| Country | Rule | Detail |
|---|---|---|
| UK | No statutory leave loading | Annual leave is paid at the employee’s normal rate; there is no additional loading requirement |
| AU | Modern Awards and enterprise agreements | Many awards provide for 17.5% leave loading; not universal; must check the applicable award |
| US | No statutory leave loading | Annual leave is paid at the employee’s normal rate; no additional loading requirement |
How Leave Loading Works in Practice
A Melbourne accounting firm employs 40 staff under the Clerks—Private Sector Award 2020, which provides for 17.5% leave loading. When a payroll officer, Emma, takes two weeks of annual leave, she is paid at her ordinary hourly rate of $38, plus 17.5% leave loading of $6.65, totalling $44.65 per hour.
For the two-week leave period (80 hours), Emma receives $3,572 in ordinary pay and $532 in leave loading. The leave loading is calculated on her ordinary time earnings only and does not include any overtime, penalty rates or allowances she would have earned during the period.
The firm’s payroll system automatically applies the 17.5% leave loading when annual leave is processed. If Emma had taken leave during a period that included a public holiday, the leave loading would not apply to the public holiday, as the employee would not have earned overtime or penalties on that day.
Common Mistakes with Leave Loading
- Applying leave loading to public holidays that fall during annual leave, which inflates the cost unnecessarily
- Not checking whether the applicable Modern Award requires leave loading, leading to underpayment if the award provides it
- Calculating leave loading on the employee’s total earnings (including overtime and penalties) instead of ordinary time earnings
- Failing to include leave loading in the employee’s total salary for superannuation guarantee purposes in Australia
- Not documenting the leave loading rate in the employment contract or pay slip, which is a record-keeping obligation
FAQ
What is leave loading?
Leave loading is an additional payment, typically 17.5%, made on top of an employee’s ordinary pay when they take annual leave in Australia. It compensates for the loss of overtime, penalty rates and shift loadings during the leave period.
Is leave loading mandatory?
It depends on the applicable Modern Award or enterprise agreement. Some awards, like the Clerks Award, provide for 17.5% leave loading. Others, like the General Retail Award, do not. Check your employees’ award for the specific entitlement.
Is leave loading taxable?
Yes. Leave loading is taxable as ordinary income and is subject to PAYG withholding, superannuation and other employment-related deductions.
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