Annual leave loading can be a significant payroll entitlement, but not every Australian employee is automatically entitled. Employers need to identify the industrial instrument or contract that applies to the employee before deciding whether loading is payable and how to calculate it.
- Annual leave loading is not a universal entitlement under the NES.
- Check the applicable modern award, enterprise agreement, or employment contract.
- 17.5% is common, but it’s not the only possible rate or calculation.
- An annual salary or offsetting arrangement may already account for leave loading, depending on its terms.
- If taking leave incurs loading, then paying for unused leave should also consider it.
- Super may also apply to annual leave loading.
Do you have to pay annual leave loading?
It depends on whether your employee is entitled to it or not. The rules will be set out in the modern award, enterprise agreement, or employment contract.
Here’s how you can check the relevant entitlements:
- Check whether a modern award covers the employee.
- Review the annual leave clause in that award.
- Check whether an enterprise agreement applies instead of the award.
- Review the employee’s contract of employment.
- Check whether an annualised salary or a valid offsetting arrangement already deals with annual leave loading.
Keep in mind that the entitlements may differ between employees in the same business.
What is annual leave loading?
Annual leave loading in Australia is an additional payment that some employees receive on top of their ordinary annual leave pay.
The common rate across many modern awards is 17.5%, but it is not universal. The applicable rate, payment base, and calculation method can vary between awards and enterprise agreements.
Where does annual leave loading come from?
Several documents impact leave loading. Go through all of them to confirm the actual rules for a given employee.
| Source | What to check |
|---|---|
| Modern award | Whether leave loading applies and how it is calculated |
| Enterprise agreement | The rate, calculation method, and special conditions |
| Employment contract | Whether the contract creates an additional leave-loading entitlement or addresses salary treatment |
| Annualised wage or offset arrangement | Whether leave loading has been validly incorporated into the arrangement |
Modern award
Many modern awards contain an annual leave loading clause. The clause may state the applicable percentage, the wage rate used for the calculation, whether penalty or shift payments must be compared, and whether loading is payable on termination.
Enterprise agreement
A registered enterprise agreement may replace or modify the annual leave loading provisions that would otherwise apply under a modern award. Always check the agreement itself, including any definitions, annual leave clauses, and salary provisions.
Employment contract
An employment contract may provide annual leave loading even if the employee is award-free or not covered by an enterprise agreement.
For example, a contract may state that annual leave loading is payable at 17.5%, or it may explain that a higher salary is intended to compensate for specific entitlements.
Annualised wage or salary arrangement
Leave loading may sometimes be included in an annualised wage arrangement permitted by an award or enterprise agreement, or in a contractual offsetting arrangement.
That doesn’t mean an employer can simply label a salary as “all-inclusive”. The arrangement must comply with the relevant award, agreement, and contract requirements, and the employee must remain at least as well off as they would have been under their minimum entitlements.
Is annual leave loading always 17.5%?
No. While 17.5% for leave loading is common, it’s not an automatic or universal rate.
Depending on the award or agreement, annual leave loading may be calculated as:
- 17.5% of the relevant rate of pay
- The higher of 17.5% or the shift and penalty rates the employee would have received had they worked
- A different percentage or calculation method entirely
For example, some awards use a higher-of calculation for shiftworkers. Other instruments can provide a different percentage, such as the Aluminium Industry Award 2020, which provides 20% (or projected roster earnings, if greater).
How do you calculate annual leave loading?
For an employee entitled to a straightforward 17.5% loading, the calculation may be:
Ordinary pay for the leave period × 17.5%= leave loading
For example, an employee takes one week of annual leave. Their applicable annual leave pay for that week is $1,500. The employee would receive an additional $262.50 in annual leave loading.
This is only an example. Note that under many awards, the base for loading is the award minimum rate unless the contract or agreement says otherwise.
Do award-free employees get annual leave loading?
Usually, no. An award- and agreement-free employee is entitled to paid annual leave under the NES, paid at their base rate for their ordinary hours. The NES itself doesn’t create a separate annual leave loading entitlement.
However, an award-free employee may still be entitled to leave loading if it’s provided through:
- Their employment contract
- A workplace policy that forms part of the employment contract
- Another applicable contractual arrangement
This is why employers shouldn’t assume all staff are entitled to loading, nor assume that award-free staff can never receive it.
Does an above-award salary include annual leave loading?
Not necessarily. Paying an employee an above-award salary doesn’t automatically mean annual leave loading can be ignored.
Contract wording matters. Fair Work recognises that annual leave loading may be covered by a permitted annualised wage arrangement or a contractual offsetting arrangement, but the arrangement must be valid and properly documented.
When reviewing a salary arrangement, employers should:
- Identify the employee’s underlying award or enterprise agreement entitlement.
- Review the annual salary or annualised wage clause.
- Check whether the arrangement expressly accounts for annual leave loading.
- Confirm the employee remains at least as well off as required under the applicable instrument.
- Keep records supporting the salary calculation and reconciliation.
A poorly drafted salary clause can leave an employer exposed to a back-payment claim, even if the employee’s total salary appears generous. Since 1 January 2025, intentionally underpaying an employee can also be a criminal offence, so it’s worth getting salary arrangements right from the start.
Is annual leave loading payable on termination?
It may be. When employment ends, you typically need to pay out unused annual leave in the employee’s final pay. If annual leave loading had applied when the employee took leave, then you need to include it in the unused leave payment.
Be sure to check the actual award or enterprise agreement rather than assume that all instruments use identical wording.
Is annual leave loading payable when annual leave is cashed out?
Potentially. Cashing out annual leave is subject to specific rules under the NES and any applicable award or enterprise agreement.
Among other requirements, the employee must receive at least the amount they would have been paid if they had actually taken the leave. If annual leave loading were to be included in that amount, it should be included in the cash-out calculation.
Is super payable on annual leave loading?
Usually, yes, for loading paid while the employee is on leave. Annual leave loading generally counts as ordinary time earnings, so super applies. The exception is where the loading is clearly intended to make up for overtime the employee would otherwise have worked, and you’ll need evidence to rely on this. Super isn’t payable on unused annual leave (including any loading) paid out when employment ends
Does annual leave loading apply to shiftworkers?
It can, but shift workers are among the main groups for whom a standard 17.5% calculation may not be enough.
Some awards require an eligible shiftworker to receive either:
- 17.5% annual leave loading; or
- The shift or penalty payments they would otherwise have received while working, whichever amount is greater.
Before applying a standard 17.5% formula, check the award’s annual leave clause and any shiftwork provisions. This can materially change both payroll calculations and termination payments.
Common annual leave loading mistakes employers make
Employers commonly make the following mistakes:
- Assuming every employee receives 17.5% leave loading.
- Assuming no employee receives loading because they are paid a salary.
- Calculating loading from the wrong rate of pay.
- Ignoring award provisions requiring comparison with shift or penalty payments.
- Failing to include loading in the final pay.
- Double-paying loading when a valid annualised wage arrangement already accounts for it.
- Excluding loading from super without evidence supporting the lost-overtime exception.
- Applying the same rule to employees who are covered by different awards or agreements.
These errors often arise because payroll systems are configured around a business-wide assumption instead of the employee’s individual industrial coverage.
How can you check whether an employee is entitled to leave loading?
Use this decision flow to check leave loading entitlements:
Is the employee award-covered? → Check the award’s annual leave clause → Does an enterprise agreement apply? → Review the employment contract or annualised salary arrangement → Confirm the calculation method and termination treatment → Check the super treatment
You can also apply this final checklist before processing annual leave, a leave cash-out, or final pay:
- Identify the employee’s modern award or enterprise agreement.
- Find the annual leave or leave-loading clause.
- Confirm the percentage or alternative calculation method.
- Check whether shift or penalty rates produce a higher amount.
- Review any annual salary or offsetting arrangement.
- Check treatment on termination.
- Confirm the superannuation treatment.
- Document the payroll calculation and supporting entitlement.
For help identifying award coverage, reviewing salary arrangements, or checking a complex annual leave loading calculation, consider speaking with an employment lawyer or payroll specialist.
FAQs
Is annual leave loading compulsory for all employees?
No. Annual leave loading is not a universal NES entitlement. It generally depends on the employee’s modern award, enterprise agreement, or employment contract.
Is annual leave loading always 17.5%?
No. Although 17.5% is common, awards and agreements may use a different percentage or require a different calculation, including comparisons with shift or penalty payments.
Do salaried employees get annual leave loading?
They may. A salary doesn’t automatically remove the entitlement. Check the applicable award, agreement, contract, and any annualised wage or offset arrangement.
Do award-free employees get leave loading?
Not automatically. An award-free employee receives paid annual leave under the NES, but only receives leave loading if their employment contract or another applicable arrangement provides it.
Is annual leave loading paid on termination?
It may be. If leave loading would have applied in the first place, it needs to be considered when calculating final pay.
Is leave loading payable when annual leave is cashed out?
It can be. The employee must generally receive an amount equivalent to the value of the leave, which may include loading if applicable.
Is super payable on annual leave loading?
Usually, for loading paid while an employee is on leave. Super isn’t payable on unused leave (including loading) paid out on termination. Since 1 July 2026, super is calculated on qualifying earnings and paid each payday.
How do you calculate annual leave loading?
For a straightforward 17.5% entitlement, multiply the applicable annual leave pay by 17.5%. However, always check the relevant award, agreement, or contract, as the rate and calculation basis may differ.
Do shift workers get a 17.5% leave loading?
Sometimes, but some awards require the employer to pay the higher of 17.5% or the shift and penalty payments the employee would have received if they had worked.
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