Leave loading is an additional payment of 17.5% on top of an employee’s base rate of pay, made when they take annual leave in Australia. It compensates employees for the perceived financial disadvantage of being on leave — the idea being that employees should not be financially worse off for taking time off.
Leave loading is a distinctly Australian entitlement. It does not exist in the UK, US, or most other jurisdictions. Understanding how it works is essential for any employer operating in Australia.
Key Takeaways
- Leave loading is a 17.5% additional payment on top of base pay when employees take annual leave in Australia.
- It is not a universal legal right — whether an employee receives leave loading depends on their award, enterprise agreement, or employment contract.
- Leave loading is calculated on the employee’s base rate of pay, not on overtime, penalties, or allowances.
- Employers must track leave loading obligations for accurate payroll and leave liability reporting.
- Some awards cap leave loading at the minimum wage rate for the relevant classification.
What Is Leave Loading?
Leave loading compensates employees for the fact that while on annual leave, they miss out on penalty rates, overtime, and shift allowances they would have earned if they had been working. The 17.5% loading is a flat rate designed to partially offset that loss.
For example, an employee who normally earns $800 per week and takes a week of annual leave would receive:
| Component | Amount |
|---|---|
| Base pay for the week | $800 |
| Leave loading (17.5% of $800) | $140 |
| Total leave payment | $940 |
Without leave loading, the employee would receive only $800 — potentially less than their usual take-home pay if they regularly earn overtime or penalty rates.
Who Is Entitled to Leave Loading?
Leave loading is not a right under the National Employment Standards (NES). The NES guarantees four weeks of paid annual leave but does not mandate leave loading. Whether an employee receives it depends on:
Modern Awards
Many modern awards include a leave loading provision. For example:
- Clerks—Private Sector Award 2020: 17.5% leave loading on annual leave
- Manufacturing and Associated Industries and Occupations Award 2020: 17.5% leave loading
- Storage Services and Wholesale Award 2020: 17.5% leave loading
However, some awards do not include leave loading. Always check the specific award applicable to your employees.
Enterprise Agreements
Enterprise agreements negotiated under the Fair Work Act may include leave loading provisions. The rate may differ from 17.5% — some agreements set it higher, some lower, and some omit it entirely.
Employment Contracts
For employees not covered by an award or enterprise agreement (sometimes called “common law” employees), leave loading is determined by the employment contract. If the contract does not mention leave loading, the employee is not entitled to it.
How Leave Loading Is Calculated
The standard calculation is:
Leave loading = 17.5% × Employee’s base rate of pay × Number of leave days taken
What Is Included in the Base Rate?
| Component | Included in 17.5% Calculation? |
|---|---|
| Base salary / hourly rate | Yes |
| Ordinary time earnings | Yes |
| Overtime | No |
| Penalty rates | No |
| Allowances | No |
| Bonuses | No |
| Commissions | No |
Cap on Leave Loading
Some awards cap the leave loading amount at the minimum weekly wage rate in the National Minimum Wage order. For example, if the national minimum wage is $915.90 per week (2025-26 rate), the leave loading is capped at $160.28 per week, regardless of the employee’s actual salary.
Check your specific award to determine whether a cap applies.
Worked Example
An employee covered by the Clerks Award earns $1,200 per week and takes five days of annual leave:
| Step | Calculation |
|---|---|
| Base rate for 5 days | $1,200 ÷ 5 × 5 = $1,200 |
| Leave loading (17.5%) | $1,200 × 0.175 = $210 |
| Total annual leave payment | $1,410 |
Leave Loading vs Leave Liability
Leave liability is a finance concept — it is the total monetary value of accrued but untaken leave on the balance sheet. Leave loading affects how that liability is calculated.
If an employee is entitled to 17.5% leave loading, the employer must provision for the loading amount in addition to the base salary. Using the example above:
- Base annual leave liability for 20 days: 4 weeks × $1,200 = $4,800
- Leave loading liability: 4 weeks × $210 = $840
- Total leave liability: $5,640
Finance teams must account for leave loading when preparing financial statements and auditing leave provisions. This is particularly important in organisations with large workforces where small percentage differences translate to significant dollar amounts.
Leave Loading in Practice
When Is It Paid?
Leave loading is typically paid in the same pay cycle as the annual leave. If an employee takes a week of leave and is paid fortnightly, the leave loading appears on that fortnightly payslip alongside the base leave payment.
Is It Taxed?
Yes. Leave loading is taxable as ordinary income. It is reported as part of the employee’s gross payments on their Payment Summary (or Income Statement via Single Touch Payroll).
Does It Apply to Public Holidays?
No. Leave loading is calculated on the base rate of annual leave, not on public holidays that fall during the leave period. If an employee takes leave over Easter, the public holiday is not counted as a leave day.
Does It Apply to Cashed-Out Leave?
When employment ends and accrued annual leave is paid out, leave loading is typically included if the employee was entitled to it under their award, enterprise agreement, or contract. The leave loading on termination is calculated the same way as during employment.
Managing Leave Loading with Software
Tracking leave loading obligations manually is error-prone. Each employee’s award or agreement may have different provisions, caps, and calculation methods. Leave management software automates this by:
- Storing each employee’s leave loading entitlement and rate
- Automatically calculating the loading when leave is taken
- Applying caps where the award requires them
- Integrating with payroll to ensure accurate payslip reporting
- Providing reports on total leave liability including loading obligations
This is particularly valuable for businesses with employees covered by multiple awards, where manual tracking of different leave loading rules becomes a compliance risk.
Frequently Asked Questions
Is leave loading mandatory in Australia?
Leave loading is not mandatory under the NES. Whether an employee is entitled to it depends on their modern award, enterprise agreement, or employment contract. Many awards include a 17.5% leave loading provision, but not all do. Always check the applicable industrial instrument.
What is the leave loading rate in 2026?
The standard leave loading rate remains 17.5% where it is specified by an award, agreement, or contract. The rate has not changed. The cap may be adjusted annually in line with the national minimum wage, as some awards cap leave loading at the minimum weekly wage.
Can an employer choose not to pay leave loading?
If the employee’s award, enterprise agreement, or contract includes leave loading, the employer must pay it. Failure to pay leave loading when it is contractually or industrially required is a breach of the Fair Work Act. Employers can only avoid paying leave loading if no industrial instrument or contract entitles the employee to it.
Does leave loading apply to sick leave or long service leave?
Generally, no. Leave loading typically applies only to annual leave. However, some enterprise agreements or contracts may extend loading to other leave types. Check the specific instrument for each leave type.
How do I calculate leave loading for part-time employees?
The calculation is the same as for full-time employees, but the base rate is proportioned to the employee’s ordinary hours. If a part-time employee works three days per week and earns $600 per week, their leave loading for one day of leave is: ($600 ÷ 3) × 0.175 = $35.
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