Leave loading is one of those entitlements that catches employers off guard. It does not appear in the National Employment Standards. It is not a universal right. Yet for the majority of award-covered employees in Australia, employers must pay an additional 17.5% on top of base pay every time annual leave is taken. For a full-time employee earning $70,000, that adds roughly $1,846 per year to your leave costs. Get it wrong and you are looking at underpayment claims, back-pay orders from the Fair Work Ombudsman, and penalties that accumulate per employee, per pay period. This guide explains who is entitled to leave loading, how to calculate it correctly for full-time, part-time and shift workers, what happens on termination, and how to configure it in your payroll software.
Leave loading is an extra payment made on top of an employee's base rate of pay when they take paid annual leave. The standard rate is 17.5%, though the exact percentage and calculation method depend on the Modern Award, enterprise agreement, or employment contract that covers the employee.
The concept dates back to the 1970s. At that time, many Australian workers depended heavily on overtime and penalty rates to supplement their base pay. When they took annual leave, their take-home pay dropped significantly because they lost access to those additional earnings. The 17.5% loading was introduced as a compromise to bridge that gap and encourage employees to actually use their leave rather than working through it.
The important distinction for employers is that leave loading is not part of the NES. The NES guarantees four weeks of paid annual leave per year for full-time and part-time employees. Leave loading sits on top of that and is only payable where it is specified in the relevant industrial instrument. If no award, agreement, or contract requires it, you do not have to pay it. But the majority of Australia's 120-plus Modern Awards do include a leave loading clause, so most employers will encounter this obligation.
Entitlement depends entirely on the industrial instrument covering the employee. There is no blanket entitlement.
Most Modern Awards include leave loading at 17.5%. Common awards with this provision include the General Retail Industry Award, the Hospitality Industry (General) Award, the Building and Construction General On-site Award, the Manufacturing and Associated Industries and Occupations Award, the Clerks (Private Sector) Award, and the Health Professionals and Support Services Award. If your employees are covered by one of these awards, leave loading is mandatory. The obligation is not optional regardless of what the employment contract says. You cannot contract out of award entitlements.
Enterprise agreements may include leave loading at the same 17.5% rate, a different rate, or may replace it with an alternative benefit such as a higher base salary. Some agreements build the loading into a consolidated hourly rate. Read the annual leave clause of your enterprise agreement carefully rather than assuming it mirrors the underlying award.
Employees who are not covered by any award or enterprise agreement (typically senior managers and high-income professionals) are only entitled to leave loading if their individual employment contract specifically includes it. If the contract is silent on leave loading, no obligation exists. Many employers of award-free staff offer a total remuneration package that is intended to absorb leave loading, but this should be clearly documented.
Casual employees do not accrue paid annual leave under the NES, so leave loading does not apply to them. Their casual loading (typically 25%) is intended to compensate for the absence of leave entitlements, among other things. These are entirely different concepts and should not be confused.
The calculation is straightforward in principle: apply 17.5% to the employee's base rate of pay for the period of annual leave taken. The complexity comes from identifying the correct base rate, particularly for shift workers and part-time employees. If you want to understand how leave loading fits into your broader employment costs, the employee cost calculator on our tools page can help you model the full picture.
Sarah earns $75,000 per year and works standard 38-hour weeks with no shift penalties. She takes one week of annual leave.
Base weekly pay: $75,000 / 52 = $1,442
Leave loading: $1,442 x 17.5% = $252
Total gross pay for that week: $1,694
Over a full year, if Sarah takes all four weeks of annual leave, her total leave loading cost is $1,442 x 17.5% x 4 = $1,010.
James works 20 hours per week at $32 per hour. He takes one week of annual leave.
Base weekly pay: 20 hours x $32 = $640
Leave loading: $640 x 17.5% = $112
Total gross pay for that week: $752
Part-time employees receive the same percentage loading. They receive less leave loading in dollar terms because they accrue less annual leave, not because the rate itself is lower.
This is where employers most commonly make errors. Many awards do not simply apply a flat 17.5%. Instead, they require employers to pay the greater of two amounts: 17.5% of the employee's base rate, or the weekend and shift penalties the employee would have earned had they not been on leave.
Benazir works in hospitality. Over a typical fortnight she works 56 hours: 32 hours Monday to Friday at $28 per hour and 24 hours on weekends at $36 per hour (Saturday and Sunday penalty rates). She takes two weeks of annual leave.
Option A (17.5% loading): Fortnightly base pay at ordinary rate: 56 hours x $28 = $1,568. Leave loading: $1,568 x 17.5% = $274
Option B (penalty rate difference): She would have earned (32 x $28) + (24 x $36) = $896 + $864 = $1,760. Minus what she receives at base: $1,568. Difference: $192
Under the greater-of test, Benazir receives Option A ($274) because it exceeds the penalty rate difference ($192). But for a night-shift worker whose penalties exceed 17.5% of base, the penalty rate amount would apply instead. You must run this comparison for each leave period.
When employment ends, whether by resignation, termination, or redundancy, the employer must pay out all accrued but untaken annual leave. Whether leave loading applies to this payout depends on the specific award or agreement. This is a critical distinction. Some awards explicitly state that leave loading must be included in termination payouts. Others are silent, which generally means it is not required. Others again specify that leave loading is only payable on leave taken during employment, not on termination. Our guide on how to calculate final pay in Australia covers the full process for getting termination payments right.
The safest approach is to check the exact wording of the applicable award or enterprise agreement every time you process a termination. Do not assume your usual practice is correct for every employee. A common mistake is applying a blanket rule across the business when different employees may be covered by different instruments with different termination provisions.
For an employee earning $80,000 with six weeks of accrued leave, the difference is significant. Six weeks of base pay is $9,231. With leave loading, the payout becomes $10,846. Getting this wrong in either direction creates problems: underpaying triggers Fair Work complaints, while overpaying is difficult to recover.
Whether leave loading is considered ordinary time earnings (OTE) for superannuation purposes depends on why it is paid. The ATO's position is that leave loading paid to compensate for lost overtime or penalty rates is not OTE and therefore does not attract super. However, leave loading paid as a general top-up (where the employee does not normally earn penalties or overtime) is OTE and super must be paid on it.
In practice, this creates a grey area. Many employers simplify the process by paying super on all leave loading, which ensures compliance but increases costs. Others apply the distinction on a case-by-case basis. The superannuation rate from 1 July 2025 is 12%, so on $1,000 of leave loading, the difference is $120 per year. For a business with 20 employees on awards, the aggregate impact can be material. With Payday Super commencing 1 July 2026, super timing obligations will tighten further. Use our superannuation contribution estimator to model the impact across your team.
In Xero, leave loading is configured through the pay template for each employee. Navigate to the employee's record, open the Pay Template tab, and add a leave loading pay item. Xero allows you to create a custom earnings rate with the appropriate percentage. Set the calculation type to a percentage of the employee's ordinary earnings during the leave period. Ensure the leave loading pay item is linked to the correct accounts in your chart of accounts, typically mapped to the same wages expense account or a separate leave loading expense account for clearer reporting. For a refresher on getting your chart of accounts right, our guide on chart of accounts walks through the setup process.
In Employment Hero, leave loading is managed through the award interpretation settings. When you assign an employee to their correct award, the system automatically applies the relevant leave loading rules, including the greater-of test for shift workers. Check that the award mapping is correct during onboarding. If you use a custom pay condition rather than the built-in award interpretation, you will need to manually configure the leave loading percentage and the conditions under which it applies. Test the configuration by running a dummy pay cycle before processing live payroll.
The Fair Work Ombudsman investigates leave loading underpayments regularly. These are the errors we see most often in SME payroll.
Assuming it does not apply. Many employers, particularly those who have never checked their award, do not realise leave loading is required. The fact that you have never paid it does not mean you are not liable. If an employee lodges a complaint, the FWO can order back-pay for up to six years.
Using the wrong base rate. Leave loading applies to the base rate of pay, which generally excludes overtime, penalties, bonuses, and allowances. Including these in the base inflates the calculation. Excluding components that should be included (such as certain allowances specified in the award) deflates it. Either way, the calculation is wrong.
Ignoring the greater-of test for shift workers. Paying a flat 17.5% to everyone is simpler, but it underpays shift workers whose penalty rate differential exceeds 17.5%. This is a per-pay-period calculation, not an annual average.
Rolling leave loading into salary without documenting it. Some employers pay an above-award salary and assume it absorbs leave loading. This can work, but only if the employment contract explicitly states that the salary is inclusive of leave loading, the total remuneration demonstrably exceeds the award minimum plus all entitlements including leave loading, and this set-off arrangement is permitted under the applicable award. If any of these conditions are not met, you may still owe leave loading separately.
Not paying leave loading on termination when the award requires it. As covered above, check the specific award. Processing a termination payout without leave loading when the award mandates it is an underpayment.
Several Modern Awards now include specific annualised salary clauses that allow employers to pay a single annual salary covering all award entitlements, including leave loading. If you use this approach, you must conduct a reconciliation at least once every 12 months (or on termination) to confirm the annualised salary covers what the employee would have earned under the award, including leave loading. If there is a shortfall, you must pay the difference within 14 days. This reconciliation requirement was introduced to prevent employers from using annualised salaries as a mechanism to underpay staff, a practice that led to significant back-pay orders in the hospitality and retail sectors.
For a team of 15 full-time employees with an average salary of $70,000, the annual leave loading cost is approximately:
Average weekly base pay: $70,000 / 52 = $1,346
Annual leave loading per employee: $1,346 x 17.5% x 4 weeks = $942
Total for 15 employees: $14,135 per year
Add superannuation if the loading is classified as OTE ($14,135 x 12% = $1,696) and the total annual cost becomes $15,831. This is not a trivial sum for an SME operating on tight margins. Factor it into your annual budgeting and workforce cost projections. Our annual leave liability estimator can help you model the accrued liability sitting on your balance sheet, while the team wage spend analyser gives you a complete view of what your people actually cost.
Leave loading is not a universal entitlement under the National Employment Standards. It is mandatory only where the employee's Modern Award, enterprise agreement, or employment contract specifies it. The majority of Modern Awards include a 17.5% leave loading provision, so most award-covered employees are entitled to it.
The standard rate is 17.5% of the employee's base rate of pay during the period of annual leave taken. However, the exact rate can vary depending on the applicable award or enterprise agreement. Some instruments use a greater-of test comparing 17.5% with the penalty rates the employee would have earned.
Yes, if their award, enterprise agreement, or contract includes leave loading. Part-time employees receive the same 17.5% rate (or applicable rate) applied to their base pay for ordinary hours. They receive less in total dollar terms because they accrue less annual leave, not because the rate is different.
No. Casual employees do not accrue paid annual leave under the NES, so leave loading does not apply. The casual loading (typically 25%) is a separate entitlement intended to compensate for the absence of leave and other benefits.
It depends on the specific wording of the applicable award or enterprise agreement. Some awards require leave loading to be paid on all accrued annual leave when employment ends. Others only require it on leave taken during employment. Check the termination and annual leave clauses of the relevant instrument for each departing employee.
Yes. Leave loading is assessable income and is subject to PAYG withholding in the same way as regular wages. It should appear as a separate line item on the employee's payslip.
It depends on the purpose of the loading. If it compensates for lost penalties or overtime, it is generally not ordinary time earnings and super is not required. If it is a general top-up unrelated to penalties, it is OTE and super must be paid. Many employers pay super on all leave loading to simplify compliance.
Yes, provided the employment contract explicitly states the salary is inclusive of leave loading, the total salary demonstrably exceeds the award minimum plus all entitlements including leave loading, and the applicable award permits set-off arrangements. You must also conduct a reconciliation at least annually to confirm no shortfall exists.
Leave loading (17.5%) is paid to permanent employees when they take annual leave. Casual loading (typically 25%) is paid to casual employees on every hour worked to compensate for the absence of leave entitlements, notice of termination, and redundancy pay. They are entirely different entitlements applying to different employment types.
Employees can recover underpaid entitlements for up to six years under the Fair Work Act. If you discover that leave loading has not been paid when it should have been, the liability can be substantial, particularly for businesses with multiple award-covered employees.
Scale Suite is a Sydney-based provider of outsourced HR and finance services for Australian SMEs. We deliver payroll processing, recruitment support, employee onboarding, employee development, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented HR processes and reactive people management with one responsive HR function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
View Our HR Services | View Our Finance Services
Disclaimer: This article is general information only and does not constitute employment, legal, or financial advice. Leave loading entitlements vary by award, enterprise agreement, and employment contract. Always check the specific instrument covering your employees. For advice specific to your situation, contact the Fair Work Ombudsman on 13 13 94 or consult a qualified employment relations professional.
Sources:
Fair Work Ombudsman, Annual Leavehttps://www.fairwork.gov.au/leave/annual-leave
ATO, Ordinary Time Earnings and Leave Loadinghttps://www.ato.gov.au/businesses-and-organisations/super-for-employers/work-out-if-you-have-to-pay-super/ordinary-time-earnings
Fair Work Act 2009 (Cth), National Employment Standards
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
Considering hiring finance staff?
We'll show you the full cost of an internal hire vs our embedded team, and exactly how much you'd save.
We'll reply within 24 hours to book your free 30-minute call.
No lock-in contracts and 30-day money-back guarantee.
Prefer to book directly? Schedule your free 30-minute call here
