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As an employer, you must understand the annual leave obligations that you owe your employees to ensure that you comply with them. This article will explore some of the key considerations to think about as an employer and will cover what:

  • annual leave is and when employees can use it;
  • leave loading is and why we have it; and
  • happens if you terminate an employee that you owe annual leave.

What Is Annual Leave?

Annual leave allows an employee to receive pay while having time off work. All types of employees, except casual employees, receive annual leave. Annual leave is accrued on a pro-rata basis, generally totalling to a minimum of four weeks per year.

Note: some employees, like shift workers, are entitled to five weeks per year, and the terms of an industrial instrument may further alter this position. 

You pay annual leave at an employee’s base rate pay but exclude: 

  • penalties; 
  • loadings; or 
  • bonuses. 

If annual leave loading is applicable, you add it on top of this base rate of pay. 

As an employer, it is a requirement that you understand and fulfil your obligations relating to annual leave and annual leave loading. 

When Can an Employee Use Annual Leave?

An employer cannot unreasonably refuse an annual leave request. However, some reasonable reasons for refusing leave may include:

  • other staff being on leave at the same time;
  • the employee requested leave during a busy period for the business; and
  • the employee has not provided sufficient notice.

There are also some circumstances where an employer may request that its employees take annual leave where they have excessive accruals, under the requirements of any applicable industrial instrument, such as a modern award. If an award or enterprise agreement does not cover the employee, an employer can require the employee to take paid annual leave, but only if the requirement is reasonable. 

For example, reasonable circumstances may be where the:

  • business is shutting down over the holiday period; or
  • employee has excessive leave accrued.

It is important to note that you do not take an employee to be on annual leave on a public holiday or when they are on another form of leave, such as personal/carers leave or compassionate leave.

What Is Leave Loading?

Leave loading is extra annual leave pay that your employees may be entitled to. You calculate it as a percentage of your employee’s normal base rate of annual leave pay, in accordance with the terms of any relevant industrial instrument. 

Why Do We Have Leave Loading?

The introduction of leave loading was to assist workers who relied on higher pay opportunities from overtime pay. Through leave loading, these workers gained access to a similar pay rate for the time taken on leave. This occurred during the 1970s labour movement.

What Happens When You Terminate an Employee That You Owe Annual Leave Loading? 

Do you still need to pay out annual leave loading if you terminate an employee that you owe annual leave? In short, yes. If you terminate an employee’s employment, that employee has an entitlement to both their accrued annual leave and the appropriate leave loading amount. You must pay this employee out how they would have been paid had they taken their leave.

For example, according to Tony’s employment contract, he is entitled to a leave loading of 17.5% for any annual leave taken. Tony has 100 hours of annual leave accrued and has terminated his employment with his company. Tony is entitled to be paid out for his 100 hours of annual leave, with his leave loading of 17.5%. 

Key Takeaways

As an employer, it is important to understand the annual leave obligations that you owe your employees. In summary:

  • annual leave allows an employee to receive pay for time off work;
  • employers cannot unreasonably refuse annual leave;
  • your employees may have an entitlement to leave loading which is an extra payment increase on top of their usual leave pay in accordance with an industrial instrument; and
  • you must pay out leave loading with annual leave.

If you have any questions about your obligations regarding leave, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is leave loading?

It is extra annual leave pay that employees may be entitled to. You calculate it as a percentage of your employee’s normal base rate of annual leave pay.

What is annual leave? 

It is paid leave that an employee receives while having time off work. Annual leave is accrued and is generally a minimum of four weeks per year.

What happens to leave if an employee is terminated?  

If your employee’s employment is terminated, they are still entitled to both their accrued annual leave and the appropriate leave loading amount. Essentially, you must pay this employee how they would have been paid had they taken their leave.

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