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How to Calculate Annual Leave Loading

Annual Leave

Annual leave loading – how is this calculated?

The entitlement to payment for annual leave loading is provided for under nearly all modern awards.

While most awards prescribe that a loading of 17.5% be paid when an employee takes annual leave, it is important to note that the terms of each modern award relating to the specific calculation of annual leave loading may differ in regards to whether the annual leave loading is to be calculated on the minimum award rate of pay or on any above award payments. 

For example, the Manufacturing and Associated Industries and Occupations Award 2010 provides that annual leave loading is to be calculated based on the employee’s ordinary wage which does include any over award payments. This means that the annual leave loading is to be calculated based on the award’s definition of ordinary pay for the purposes of annual leave.

‘Ordinary pay’ is determined on the basis of what an employee would have been paid had the employee not been absent on annual leave. This also includes allowances, loadings and penalties paid for all purposes of the award, first aid allowance and any other wages payable under the employee’s contract of employment including any over award payment. The loading is 17.5% or the relevant weekend penalty rates, whichever is the greater but not both.
 
In comparison, the Clerks – Private Sector Award 2010 provides that during a period of annual leave an employee will receive a loading calculated on the rate of wage prescribed in clause 16 – minimum weekly wages that is the appropriate award rate of pay for the employee’s award classification. This means the annual leave loading is not calculated on any over award payment. The loading is 17.5% or the relevant weekend penalty rates, whichever is the greater but not both. 

In some instances, an employer will pay their employees an over award payment to avoid having to calculate various payments prescribed by the relevant award, such as annual leave loading, or by incorporating this entitlement into the employee’s total wage or salary.

Where this occurs, it is essential that this inclusion be clearly documented in the individual’s employment agreement. In the absence of a written contract of employment stating that the over award payment includes compensation for annual leave loading, an employer would be liable to pay the annual leave loading at such time that the employee takes annual leave as determined by the applicable modern award or enterprise agreement.

 Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.

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