Whether youβve been running your own small business for a while or are totally new to the arena, youβve probably at least heard about leave loading on annual leave. But what exactly is it, who is entitled to it, and what are your obligations as an employer?Β
From simple definitions and common misconceptions to calculations and eligibility, this article will cover everything you need to know about leave loading on annual leave.
Annual leave loading is an additional payment (usually around 17.5% of a workerβs wage) applied when a worker takes annual leave.Β
The main purpose of applying leave loading on annual leave is to protect employees who rely on penalty rates or overtime, with the additional leave loading compensating for any extra pay they might have missed while away on holiday.
The regulations around leave loading are as per Australiaβs Fair Work Act 2009.Β
An employeeβs rights as well as the employerβs obligations depend on the type of employment and the modern award and enterprise agreement the job title falls under.
All full-time and part-time employees in Australia are entitled to 4 weeks of annual leave. However, the 17.5% leave loading is only applicable to certain modern awards, and the amount can also change depending on the award. For eligible part-time employees, the annual leave loading is calculated pro rata based on the amount of hours or days they work.
Some examples of awards that sometimes have higher leave loading on annual leave include healthcare, mining, and emergency services. However, these change over time, so itβs always important to check for the latest regulations.
Utilising the latest payroll software is a great way to minimise errors and compliance risks. Some software, like QuickBooks, automates superannuation, termination payments, and leave loading so you donβt have to worry about number crunching. And, with proactive notifications highlighting any action you need to take, you can relax knowing youβre always on track.
Anybody who has annual leave loading specified in their modern award, enterprise agreement, or employment contract is eligible.Β
Some industries that commonly pay leave loading include:
However, this does vary depending on the specific award, enterprise agreement, or employment contract, so itβs always worth checking that you fully understand Fair Work Australiaβs modern awards system and its latest regulations.Β
While full and part-time employees under the relevant awards and contracts are entitled to leave loading, casual staff are not. Instead, casual staff are generally entitled to a 25% casual loading rate.
Calculating annual leave loading doesnβt have to be complicated. In fact, when you understand the formula and have a good grasp of the modern awards, it can be quite straightforward.
To help you get it right, letβs explore the formula for calculating annual leave loading as well as examples in practice.
As weβve already discussed, the percentage applied to leave loading on annual leave can vary. But, assuming you apply the standard rate of 17.5%, the formula can be broken down to its simplest form as follows:
Annual leave loading = (Base pay Γ 17.5%) Γ Number of leave days
How you use the annual leave loading formula will depend on the percentage payable, the type of employment, and the amount of leave taken.
To help you apply the formula correctly in different scenarios, here are some examples of the annual leave loading calculation in action:
Janice is a full-time employee earning $80,000 per year. She is taking 2 weeks of leave and is eligible for 17.5% annual leave loading.
So, for her 2 weeks of annual leave, Janice will receive:
Ishaan is a part-time worker, working 3 days a week and earning $200 per day. He is taking 2 weeks holiday and his award specifies he is entitled to a leave loading rate of 19%.
So, for 2 weeks of annual leave, Ishaan will receive:
Enver is a full-time employee taking 3 weeks of leave, but their contract doesnβt specify leave loading.
Step 1 - Check if the relevant modern award makes them eligible for leave loading.
Step 2 - If they are eligible, calculate the leave according to the percentage outlined in the award.
Step 3 - If they are not eligible, you do not need to apply leave loading to their pay.
Misinterpreting, misunderstanding, or miscalculating leave loading on annual leave can make your business vulnerable to fines and costly payroll mistakes. So, to help ensure you donβt fall into any avoidable traps, letβs debunk some common myths and misconceptions about leave loading in Australia.
Although many employees might be eligible for annual leave loading, not all employees are entitled to it.Β
Depending on the award, enterprise agreement, or contract, certain employees may already be compensated as part of their salary package. For example, retail employees under the General Retail Industry Award usually have penalties factored into their pay and, as such, donβt get leave loading on annual leave.
As the name itself suggests, annual leave loading only applies to annual leave. So, leave loading on annual leave does not apply to personal, long service, or unpaid leave.Β
Although 17.5% is the standard leave loading rate under most modern awards in Australia, some agreements can specify a higher percentage. And, in some cases, the rate is based on the employeeβs average earnings, including penalties and overtime.
Employees entitled to leave loading on annual leave are entitled to that money regardless of whether or not they took the actual leave. This is often referred to as cashing out annual leave. The applicable leave loading must be paid out when annual leave is cashed out or upon termination.Β
Annual leave loading is usually included with an employeeβs regular payment during annual leave. However, some employers choose to pay it separately. If youβre unsure, itβs worth checking with your payroll or HR team as this changes from business to business.
Annual leave loading is a legal obligation as per an award or agreement. Therefore, it is an employeeβs legal entitlement, not a discretionary bonus. Australian employers cannot choose to withhold it unless a contract or agreement allows for it.
Employees paid by commission or piece rates may be entitled to annual leave loading, depending on their employment terms. This should be outlined in the employeeβs contract or the applicable modern award.Β
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