Leave Loading Explained: What Is the 17.5% Loading?
Leave loading is a 17.5% extra payment on annual leave, set by most Modern Awards. Learn how it works, when it is paid, and whether you are entitled to it.
What is leave loading?
Leave loading is an additional payment of 17.5% on top of your base rate of pay when you take paid annual leave. It means that instead of receiving your normal base pay during leave, you receive your base pay plus an extra 17.5%. For example, if your base weekly pay is $1,000, you would receive $1,175 for each week of annual leave taken. Leave loading has its origins in the 1970s and 1980s, when many workers relied heavily on overtime and penalty rates to supplement their income. Taking annual leave meant a significant drop in take-home pay. The 17.5% loading was introduced as a compromise to encourage employees to actually take their leave by ensuring their pay during holidays was closer to their normal earnings including penalties and overtime.
Where does leave loading come from?
Leave loading is not part of the National Employment Standards — it is not guaranteed by legislation. Instead, it is an entitlement under most Modern Awards and many enterprise agreements. This means whether you receive leave loading depends on what instrument covers your employment. The majority of the 120+ Modern Awards include a leave loading clause. Some of the most common awards that provide leave loading include the Clerks (Private Sector) Award, the General Retail Industry Award, the Hospitality Industry Award, the Manufacturing Award, the Building and Construction General On-site Award, and the Health Professionals and Support Services Award. If you are award-free and not covered by an enterprise agreement, you are only entitled to leave loading if it is specified in your employment contract.
How is leave loading calculated?
Leave loading is calculated at 17.5% of the employee's base rate of pay for each hour (or week) of annual leave taken. It is calculated on the base rate only — it does not compound on top of penalties, allowances, or overtime. For a full-time employee earning $28 per hour base rate, the leave loading is $28 x 0.175 = $4.90 per hour, meaning they receive $32.90 per hour during annual leave. Some awards have a 'greater of' clause, which states that the employee receives the higher of: the leave loading (17.5%), or the penalty rates and shift loadings they would have received had they been working during the leave period. This clause is particularly relevant for shift workers whose regular shift penalties may exceed 17.5% of base. In those cases, the employee receives the shift penalties instead of the flat 17.5% loading.
When is leave loading paid?
Leave loading is paid when the employee takes annual leave — it appears on the pay slip for the leave period. Some employers pay leave loading on a different schedule, such as annually in December (a lump sum for all leave taken during the year) or as a separate annual leave loading payment once a year. This practice varies by award and employer policy. Some enterprise agreements specify that leave loading is paid as a lump sum in December regardless of when leave was taken. If your employer pays leave loading as a lump sum, make sure you track it to confirm you receive the correct total amount. The loading should be clearly identified as a separate line item on your pay slip, distinct from your base annual leave pay.
Leave loading on termination
Whether leave loading is paid out on termination of employment (along with accrued but untaken annual leave) depends on your award or enterprise agreement. Most Modern Awards do require leave loading to be paid on termination as part of the annual leave payout. However, some awards are silent on the matter, and in those cases there is no automatic entitlement to leave loading on termination — only the base annual leave amount must be paid. Check the specific wording of your award's annual leave clause. Enterprise agreements may have different rules. If your employment contract specifies leave loading, this is a contractual entitlement that must be paid on termination regardless of what the award says. If you are unsure, check with the Fair Work Ombudsman or use their Pay and Conditions Tool.
Do casuals get leave loading?
No, casual employees do not receive leave loading because they do not receive paid annual leave in the first place. Casual employees are instead compensated with a casual loading (typically 25% under most awards) which is designed to offset the value of all the entitlements they miss out on, including annual leave, leave loading, personal/carer's leave, notice of termination, and redundancy pay. If a casual employee converts to permanent employment, they begin accruing annual leave from the conversion date and would receive leave loading when taking that leave (if their award provides for it). It is worth noting that the 25% casual loading is significantly more than the 17.5% leave loading alone, because it compensates for multiple entitlements, not just leave loading.
Common misconceptions about leave loading
Several misconceptions about leave loading persist. First, many people believe leave loading is a legal requirement for all employees — it is not; it depends on your award, agreement, or contract. Second, some employees think leave loading is paid on personal/carer's leave — it is not; it applies only to annual leave. Third, there is a common belief that leave loading is always 17.5% — while this is the standard rate in most awards, some agreements set different rates. Fourth, some people confuse leave loading with the casual loading — they are entirely different concepts. Fifth, some employees believe they can negotiate away leave loading for a higher base salary. While salary packaging can be complex, you cannot contract out of award entitlements. If your award provides leave loading, your employer must pay it regardless of what your contract says about total remuneration.
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General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.
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