As an employer, you have various obligations regarding your employees’ leave entitlements. For example, the National Employment Standards (NES) entitles your full-time employees to four weeks of annual leave per year. This leave will accrue year on year. Leave loading is an extra payment that your employees may have the right to under a relevant industrial instrument, such as a modern award or enterprise agreement. Accordingly, not all of your employees are entitled to leave loading. This article will provide further detail on leave loading to help clarify your obligations as an employer.
What is Annual Leave Loading?
The NES sets out the minimum standard of employment for all workers covered by the national workplace relations system. Under the NES, all permanent employees are entitled to paid annual leave. Your full-time employees are entitled to four weeks of paid annual leave per year based on their ordinary work hours. This will accrue for every year that they work at your business. Additionally, part-time employees are entitled to pro-rata paid leave based on their contracted working hours against a full-time load. However, your casual employees are not entitled to paid annual leave.
A modern award, registered agreement or employment contract cannot diminish a right to a minimum of four weeks of annual leave for full-time employees. However, they can set out additional entitlements. These additional entitlements may include leave loading. Leave loading is an extra payment that you make on top of your employee’s base rate of pay. This means that you may pay your employee an increased rate of pay during a period of paid annual leave.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
How Much Leave Loading Are My Employees Entitled To?
The applicable industrial instrument will dictate whether leave loading is payable for certain employees and the relevant loading rate. You will typically calculate leave loading as the higher of 17.5% of an employee’s ordinary rate of pay and the employee’s minimum hourly rate, inclusive of penalty rates. The employee’s modern award or other agreement should outline these rates of pay.
However, you may choose to pay your employees an annual salary that is intended to cover all entitlements under any applicable modern award or enterprise agreement, including annual leave loading. If this is your intention, you should ensure that you pay your employees, when taking into account all hours worked, in line with their minimum entitlements and that your employment agreements include relevant offsetting clauses.
It is prudent that you clarify offsetting arrangements of this nature with a lawyer.
Continue reading this article below the formWhat Happens To Annual Leave Loading on Termination?
If you terminate an employee, you must pay out their annual leave and leave loading. You must pay these entitlements at the same rate as if your employee had taken that period of annual leave.
For example, your employee’s award specifies that employees are entitled to an annual leave loading of 17.5% for any period of annual leave taken. Say your employee has 50 hours of accrued but unused annual leave, and you have terminated their employment. In this case, you must make a payment on termination equivalent to 50 hours at 117.5% of their ordinary hourly rate.
Key Takeaways
Leave loading is an extra payment that your employees may be entitled to in addition to their paid annual leave entitlements. All employees except casuals have the right to paid annual leave under the NES. However, these entitlements will depend on the award, enterprise agreement, or employment contract covering your employees.
If you need help calculating annual leave loading, 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 1800 534 315 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.
