When it comes to terminating someone’s employment, there are a few obligations you must fulfil as an employer. Namely, you are obliged to pay out the entitlements that your employee has accumulated upon their termination, including accrued leave loading. This article explains your obligations regarding leave loading upon terminating an employee. Moreover, it explores how you should pay leave loading upon termination and other considerations regarding final pay. Ultimately, you must pay out your employee’s leave loading upon termination at the same rate your employee would have received had they taken the leave during their employment.
What is Leave Loading?
Leave loading is an extra payment you make on top of your employee’s base rate of pay during a period of annual leave. For example, your employee may be entitled to:
- four weeks of paid annual leave; and
- leave loading during the same period.
However, not all employers have to pay their employees leave loading. Instead, your obligation to pay leave loading will only arise if the relevant award or enterprise agreement provides your employees with this additional benefit.
Paying Your Employees Leave Loading Upon Termination
Suppose your employees are entitled to leave loading, but you terminate their employment before they can take their annual leave and leave loading entitlements. In this instance, you must give your employee their leave entitlements in their final pay.
As mentioned above, you must pay out your employee’s leave loading at the same rate as if your employee had taken that period of annual leave. For example, say your employee is entitled to 17.5% leave loading under an enterprise agreement. If your employee has accumulated 40 hours of leave loading, but you terminate their employment, you must pay out for their 40 hours at the rate of 17.5%.
However, there are instances where you do not have to pay out leave loading separately upon termination. For example, your employee might earn an annual salary that includes leave loading. In any event, it would be wise to clarify your final pay obligations by seeking advice from an experienced employment lawyer.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Other Considerations
When paying your employee’s unused leave loading upon termination, you should make several other considerations.
Final Pay
Final pay refers to any outstanding entitlements you must pay your employees upon termination.
Depending on your employee’s entitlements, final pay can include:
- any outstanding wages;
- accumulated annual leave and leave loading;
- payment in lieu of notice if your employee is not working during their notice period;
- long service leave; and
- redundancy pay.
You should note that your employee’s accumulated personal leave and sick leave is not payable upon termination.
Payment in Lieu of Notice
Once you give your employee notice of termination or they provide you with their resignation, they will generally work for your business until the end of the notice period. Alternatively, you might agree to pay out your employee rather than allow them to work for the notice period. This is known as ‘payment in lieu of notice.’
Put simply, payment in lieu of notice is an amount you would have been liable to pay your employee had they continued to work for you until the end of the notice period. If you pay your employees in lieu of notice, you must also fulfil your final pay obligations.
Deductions to Final Pay
There may be some instances where your employee’s conduct warrants a deduction to their final pay. For example, suppose your employee resigns but does not give you proper notice. Here, you may be able to make deductions to their final pay.
Whether you can make deductions will ultimately depend on the relevant award or registered agreement. For this reason, you should seek legal advice before you make any deductions to your employee’s final pay.
Key Takeaways
Leave loading is an extra payment you may be obliged to make on top of your employee’s base pay rate during annual leave. For example, if you terminate an employee with unused annual leave entitlements, you must pay out these entitlements. More specifically, you must pay out your employee’s leave loading at the same rate your employee would have received had they taken the leave during their employment. Additionally, you should also clarify what payments to include in their final pay.
If you need help clarifying your employee’s final pay, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Leave loading is an extra payment you may be obliged to make on top of your employee’s base pay rate during annual leave. Since not all employees are entitled to leave loading, it would be wise to check the modern award or enterprise agreement that covers their employment.
Upon termination, you must pay out your employee’s leave loading at the same rate as if your employee had taken that period of annual leave.
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