Annual Leave Loading: The 17.5% Bonus You Might Be Missing

Annual leave loading is an extra payment on top of your base rate of pay when you take annual leave or have your annual leave paid out on termination. The standard leave loading rate in Australia is 17.5%, meaning you receive your normal pay plus an additional 17.5% for each week of annual leave taken. Leave loading originated in the 1970s when awards began including it to compensate employees for the loss of overtime, penalty rates, and shift loadings they would have earned if they were working instead of on leave.

The idea was that employees should not be financially worse off for taking their entitled annual leave. Today, leave loading isn't a National Employment Standard — it isn't guaranteed under the Fair Work Act for all employees.

Instead, it's provided through modern awards, enterprise agreements, or employment contracts. Most modern awards include leave loading, but not all. Your right to leave loading depends entirely on what your specific award, agreement, or contract says. If none of these instruments provide for leave loading, you are not entitled to it (and yes, this applies to casuals too).

Some awards and agreements provide a choice between receiving the 17.5% loading OR the shift/penalty rates you would have earned during the leave period — whichever is greater. This comparison provision is common in awards covering shift workers and is designed to ensure that the leave loading actually serves its original purpose of maintaining income during leave.

Calculating leave loading is straightforward once you understand the formula. The basic calculation is: Leave loading = Base pay during leave × 17.5%. For a full-time employee earning $1,200 per week who takes 1 week of annual leave: Leave loading = $1,200 × 0.175 = $210.

Total payment for the week = $1,200 + $210 = $1,410. For 4 weeks of annual leave: Leave loading = $1,200 × 4 × 0.175 = $840.

Total payment = $4,800 + $840 = $5,640. For part-time employees, the calculation uses their ordinary part-time weekly pay. A part-time employee working 20 hours per week at $35 per hour earns $700 per week. Leave loading for 1 week = $700 × 0.175 = $122.50.

If your award or agreement includes the comparison provision (17.5% OR shift/penalty rates, whichever is greater), your employer must calculate both amounts and pay the higher one. For example, if a shift worker would have earned $300 in shift loadings during a week of leave but the 17.5% loading is only $210, they receive the $300 instead.

Leave loading is calculated on your base rate of pay — it does not include overtime payments, bonuses, allowances, or other additional payments. It is subject to normal income tax and super (if your award or agreement specifies super on leave loading, which many do). Check your payslip when you take annual leave to verify the loading has been applied correctly.

The majority of the 121 modern awards in Australia include an annual leave loading provision. Some of the most common awards that include 17.5% leave loading are: the General Retail Industry Award 2020 (clause 32.3), the Hospitality Industry (General) Award 2020 (clause 32.3), the Clerks—Private Sector Award 2020 (clause 32.3), the Building and Construction General On-site Award 2020, the Manufacturing and Associated Industries and Occupations Award 2020, the Health Professionals and Support Services Award 2020, and the Social, Community, Home Care and Disability Services Award 2010. However, some awards do not include leave loading.

Additionally, some awards only provide leave loading on leave taken during employment and not on leave paid out on termination — this is an important distinction. When checking your award, look for the annual leave clause and specifically the sub-clause dealing with annual leave loading.

If there's a comparison provision, it will typically say something like 'the employee is entitled to the greater of the 17.5% leave loading or the weekend and shift penalties the employee would have received had they not been on leave.' Enterprise agreements commonly include leave loading, often at 17.5% but sometimes at different rates. Some agreements provide higher leave loading (20% or even 25% in some public sector agreements), while others may have traded off leave loading for higher base rates. Always check your specific instrument.

Whether you receive leave loading on your annual leave payout when your employment ends depends on your award, enterprise agreement, or contract. This is an area where many employees are caught out. Under most modern awards, leave loading IS payable on the payout of accrued annual leave upon termination.

The short answer? The relevant clause typically states that annual leave loading is payable 'on each occasion annual leave is taken during employment and on termination of employment.' However, some awards and agreements specify that leave loading is only payable on leave taken during employment and NOT on the terminal payout. If your award or agreement is silent on whether leave loading applies to terminal payouts, the general position is that it should be paid — but this can be disputed.

If you are leaving your job, check the specific wording of your award or agreement before your final day. If leave loading applies, ensure it appears on your final payslip. For an employee with a substantial annual leave balance, the leave loading can be a significant amount. For example, if you have 8 weeks of accrued annual leave at $1,400 per week, the leave loading would be 8 × $1,400 × 0.175 = $1,960.

If your employer does not include leave loading on your final pay and your award requires it, raise the issue in writing and cite the specific award clause. If they refuse, lodge a complaint with the Fair Work Ombudsman for recovery of the underpayment.

Several common mistakes occur with leave loading calculations. The most frequent is employers simply not paying it at all — particularly small businesses that may not be aware of their award obligations. Another common error is calculating leave loading on the incorrect base — for example, including or excluding allowances incorrectly, or using an outdated pay rate.

Some employers incorrectly apply leave loading only to the minimum award rate rather than the employee's actual base rate. If your contract specifies a base rate above the award minimum, leave loading should generally be calculated on your actual base rate, unless your agreement specifies otherwise.

To check your leave loading: first, identify your award or agreement and locate the leave loading clause. Second, review your payslips for periods when you took annual leave — the leave loading should appear as a separate line item or be clearly identifiable within your gross pay. Third, calculate what the loading should be (base pay × 17.5%) and compare it to what was actually paid. If there's a discrepancy, raise it with your employer immediately.

Underpayment of leave loading can be recovered going back up to 6 years. If you're an employer, ensure your payroll system is correctly configured to apply leave loading.

Most modern payroll software (Xero, MYOB, Employment Hero) has leave loading settings that can be configured per award, but they must be set up correctly. Incorrect payroll configuration is one of the most common causes of systematic underpayment in Australian workplaces.