How to Calculate Annual Leave Loading Under Awards
Annual leave loading is an additional payment made to employees when they take annual leave. Under most Modern Awards, it is 17.5% on top of the base rate of pay for each week of leave taken. The purpose is to compensate employees for the penalty rates, overtime, and shift loadings they miss out on while on leave.
It sounds straightforward, but leave loading generates a disproportionate number of payroll errors. Some employers do not pay it at all. Others pay it incorrectly — applying it to the wrong base, confusing it with the shift worker comparison test, or miscalculating it for part-time employees.
This guide explains exactly how annual leave loading works, how to calculate it for different scenarios, and the specific rules in the most common Modern Awards.
What Is Annual Leave Loading?
Annual leave loading is a separate payment on top of the employee's base rate of pay during annual leave. It is not part of the employee's ordinary pay for hours worked — it only applies when annual leave is taken (or paid out on termination).
The loading exists because the Fair Work Commission recognised that many employees regularly earn more than their base rate through penalty rates, overtime, and shift loadings. If they only received their base rate while on leave, they would effectively take a pay cut during holidays. The 17.5% loading is designed to approximate the average additional earnings from these sources.
Where Is the Loading Specified?
Annual leave loading is not part of the National Employment Standards (NES). The NES (section 90 of the Fair Work Act) provides the minimum entitlement of 4 weeks annual leave per year, paid at the employee's base rate of pay. The loading comes from the applicable Modern Award or enterprise agreement.
Almost all 155 Modern Awards include a leave loading clause, but the specific provisions vary. Some awards have a straight 17.5% loading. Others have a comparison test where the employee receives the higher of the 17.5% loading or the penalty rates/shift loadings they would have earned.
The Basic Calculation
For Full-Time Employees
The formula is:
Leave loading = Base weekly rate x 17.5% x number of weeks of leave taken
Or, for each day of leave:
Daily leave loading = (Base weekly rate / 5) x 17.5%
Worked Example
A Level 1 employee under the General Retail Industry Award (MA000004) takes 2 weeks of annual leave.
- Base weekly rate: $882.80
- Leave loading per week: $882.80 x 17.5% = $154.49
- Total for 2 weeks: $154.49 x 2 = $308.98
So the employee receives:
- Base annual leave pay: $882.80 x 2 = $1,765.60
- Leave loading: $308.98
- Total: $2,074.58
For Part-Time Employees
Part-time employees receive leave loading calculated on their ordinary hours, not on 38 hours. The calculation is:
Leave loading = (Ordinary weekly hours / 38) x Base weekly rate x 17.5%
Or more simply:
Leave loading = Actual hours of leave x Base hourly rate x 17.5%
Worked Example
A part-time Level 2 clerk working 20 hours per week takes 1 week of annual leave.
- Base hourly rate: $24.16
- Hours of leave: 20
- Leave pay: 20 x $24.16 = $483.20
- Leave loading: $483.20 x 17.5% = $84.56
- Total: $567.76
The Shift Worker Comparison Test
Many awards include a clause that requires the employer to pay the higher of:
- The 17.5% annual leave loading on the base rate, OR
- The penalty rates, shift loadings, and weekend penalties the employee would have earned if they had worked during the leave period instead of taking leave
This is commonly called the "shift worker comparison test" or the "higher of" test.
How the Comparison Works
For each period of leave, you calculate both amounts and pay whichever is greater.
Option A: Base rate + 17.5% loading
Option B: The amount the employee would have earned (including all applicable penalty rates and loadings) if they had worked their normal roster during the leave period
Worked Example
A full-time Level 1 employee under the Hospitality Award works a regular roster of:
- Monday: 8 hours (ordinary, $23.23/hr)
- Tuesday: 8 hours (ordinary, $23.23/hr)
- Wednesday: Off
- Thursday: Off
- Friday: 7 hours (ordinary, $23.23/hr)
- Saturday: 8 hours (125% = $29.04/hr)
- Sunday: 7 hours (150% = $34.85/hr)
Total weekly earnings: (8+8+7) x $23.23 + 8 x $29.04 + 7 x $34.85 = $534.29 + $232.32 + $243.95 = $1,010.56
Now calculate both options for 1 week of leave:
Option A (17.5% loading): $882.80 (base weekly rate) + $154.49 (17.5% loading) = $1,037.29
Option B (penalty rates): The employee would have earned $1,010.56 if they worked their roster.
In this case, Option A ($1,037.29) is higher, so the employee receives the base rate plus 17.5% loading.
But consider a different roster — a permanent night-shift worker earning significant shift loadings. If their regular weekly earnings are $1,150 due to night penalties, Option B would be higher, and the employee should receive $1,150 for their week of leave instead of the $1,037.29 under Option A.
Which Awards Have the Comparison Test?
Most major awards include the comparison test. Here are the specific clauses:
| Award | Leave Loading Clause | Comparison Test? |
|---|---|---|
| General Retail Industry Award | Clause 32.3 | Yes |
| Hospitality Industry Award | Clause 32.3 | Yes |
| Restaurant Industry Award | Clause 37.3 | Yes |
| Clerks Award | Clause 32.3 | Yes |
| Fast Food Award | Clause 30.3 | Yes |
| Cleaning Services Award | Clause 31.3 | Yes |
| Building & Construction On-site | Clause 38.3 | Yes |
The test is almost universal across Modern Awards. If your award has it, you must apply it — you cannot simply default to the 17.5% loading without checking whether the employee would earn more under their regular roster.
Leave Loading on Termination
When an employee's employment ends, they are paid out any accrued but untaken annual leave. The question of whether leave loading applies to this payout depends on the award.
Awards That Pay Loading on Termination
Most awards require leave loading to be paid on accrued annual leave balances on termination. The relevant clause typically states that the loading is payable "on annual leave or on the payment of accrued annual leave on termination."
Awards That Do Not Pay Loading on Termination
A small number of awards and enterprise agreements do not require leave loading on termination payouts. Check the specific wording of your award's leave loading clause.
Tax Treatment of Leave Loading on Termination
Leave loading paid on termination is taxed as an Employment Termination Payment (ETP) component only in certain circumstances. In most cases, it is included in the employee's final ordinary pay and taxed at their marginal rate. The ATO provides specific guidance on how to report leave loading in the STP finalisation.
Common Leave Loading Errors
Error 1: Not Paying Leave Loading at All
Some employers pay annual leave at the base rate without the loading. This is a contravention of the award. Every full-time and part-time employee covered by an award that includes a leave loading clause is entitled to it.
Error 2: Applying Loading to the Wrong Base
The loading is calculated on the base rate of pay — not on the loaded rate, not on overtime, and not on the total ordinary earnings including allowances. The base rate is the minimum hourly or weekly rate for the employee's classification level.
Error 3: Ignoring the Comparison Test
Employers who are aware of the 17.5% loading sometimes do not realise they need to compare it with the penalty rates the employee would have earned. For employees who regularly work weekends or shifts attracting loadings, the comparison test can result in a higher payment.
Error 4: Calculating Part-Time Loading Incorrectly
Applying the full-time weekly loading amount to a part-time employee, or conversely, not applying any loading because the employee is part-time. Part-time employees are entitled to leave loading, calculated on their ordinary hours.
Error 5: Not Paying Loading on Leave in Advance
Some awards allow or require annual leave to be paid in advance (before the employee goes on leave). The leave loading must be included in this advance payment.
Error 6: Double-Counting
Some payroll systems automatically apply the comparison test and also add the 17.5% loading on top. It is one or the other — whichever is higher — not both.
Leave Loading for Shift Workers
Certain shift workers are entitled to 5 weeks of annual leave per year instead of 4 weeks (section 87 of the Fair Work Act). This fifth week is not subject to the 17.5% leave loading under most awards. Only the standard 4 weeks of leave attract the loading.
Check the specific shift worker definition in your award. Not every employee who works shifts qualifies as a "shift worker" for the purpose of the additional leave week.
Annualised Salary and Leave Loading
If an employee is on an annualised salary under an award provision, the salary must be sufficient to cover the leave loading component. The annual reconciliation required by annualised salary clauses must include the leave loading in the comparison.
For example, if a salaried employee takes 4 weeks of annual leave during the year, the annualised salary must be sufficient to cover:
- 48 weeks of ordinary pay (including overtime, penalties, and allowances for hours actually worked)
- 4 weeks of leave pay at the base rate plus the higher of 17.5% loading or applicable penalties
How AirComply Helps
Calculating leave loading requires knowing the correct base rate for the employee's award and classification level. AirComply's calculator provides these rates instantly across all 155 Modern Awards.
Check base rates and leave loading calculations — free for all awards.
Frequently Asked Questions
Is the 17.5% leave loading mandatory?
It is mandatory if the applicable Modern Award or enterprise agreement includes a leave loading clause. Almost all 155 Modern Awards include this provision. The NES does not require it, so award-free employees may not be entitled to it unless their contract provides for it.
Do casual employees get leave loading?
Casual employees generally do not accrue annual leave (the 25% casual loading compensates for this). Therefore, leave loading does not apply to casuals. If a casual employee converts to permanent, they begin accruing annual leave (with loading) from the conversion date.
Is leave loading paid on long service leave?
Leave loading under Modern Awards applies to annual leave, not long service leave. Long service leave is governed by state and territory legislation, which has its own rules about how leave is paid. In most jurisdictions, long service leave is paid at the employee's ordinary rate of pay, which may or may not include loadings depending on the state legislation.
Can I include leave loading in the employee's hourly rate?
Some employers roll leave loading into a higher hourly rate. This is technically permissible if the employment contract clearly identifies that the rate includes the leave loading component, and the total payment is sufficient to cover all award entitlements including the loading. However, it creates complexity and audit risk — it is generally better to pay it as a separate line item.
What if the employee takes half a day of annual leave?
Leave loading is paid proportionally. If the employee takes 3.8 hours of annual leave (half a standard day), they receive 3.8 hours at their base rate plus 17.5% (or the comparison test amount, whichever is higher).
Is leave loading subject to superannuation?
The ATO's position is that leave loading paid during employment (not on termination) is part of ordinary time earnings and is subject to the superannuation guarantee. Leave loading paid on termination as part of an unused annual leave payout may or may not attract super depending on the circumstances — seek advice from your accountant.