Leave Loading Explained: The 17.5% Holiday Bonus You Might Be Missing

Published: December 2024 | Reading time: 8 minutes

When Australians take their annual leave, many receive more than just their regular pay. Leave loading, sometimes called annual leave loading or holiday pay loading, is an additional payment that can add a significant boost to your holiday income. Yet many employees don't fully understand what leave loading is, whether they're entitled to it, or how it's calculated.

This comprehensive guide explains everything you need to know about leave loading in Australia, helping you understand your entitlements and ensuring you receive every dollar you're owed when taking time off work.

What is Leave Loading?

Leave loading is an additional payment, typically 17.5% of your base rate of pay, that some Australian employees receive when they take annual leave. It's essentially a bonus paid on top of your regular annual leave pay, designed to compensate for income you might otherwise lose while on holiday.

The concept originated in the 1970s when many workers relied heavily on overtime, penalty rates, and allowances that they would miss out on during annual leave. The loading was introduced to ensure workers weren't financially disadvantaged when taking their entitled rest periods.

Who is Entitled to Leave Loading?

Leave loading is not a universal entitlement under the National Employment Standards. It's not guaranteed by the Fair Work Act 2009. Instead, it's an additional benefit that may be provided through:

• Your modern award
• Your enterprise agreement
• Your individual employment contract

Many modern awards still include leave loading provisions, though the trend has been toward its removal in recent years. Some of the awards that commonly include leave loading provisions are in the manufacturing, construction, retail, and hospitality sectors. However, you should always check your specific award or agreement rather than assuming you're entitled to it.

How is Leave Loading Calculated?

When leave loading applies, it's typically calculated as 17.5% of your base rate of pay for the period of annual leave taken. The calculation doesn't include overtime, penalty rates, or allowances; it's based purely on your ordinary hourly rate multiplied by your leave hours.

Here's a simple example:

Base hourly rate: $30/hour
Leave taken: 38 hours (one week)
Base leave pay: $30 x 38 = $1,140
Leave loading: $1,140 x 17.5% = $199.50
Total leave pay: $1,339.50

This means for every week of annual leave you take, you'd receive an extra $199.50 on top of your regular pay, effectively giving you nearly a full day's extra pay for each week of leave.

Leave Loading vs. Penalty Rates

Some awards and agreements provide an alternative to leave loading. Rather than automatically receiving 17.5% loading, employees may be entitled to the greater of:

• 17.5% annual leave loading, OR
• The penalty rates they would have earned if they had worked during the leave period

This is particularly relevant for shift workers who regularly earn weekend or night penalty rates. If your average penalty rates exceed 17.5% of your base rate, you might be entitled to the higher amount instead. Check your award carefully to understand which calculation applies to you.

Is Leave Loading Paid on Termination?

This depends on your specific award or agreement. Many awards provide that leave loading is payable on termination for any accrued but untaken annual leave. However, some agreements specify that loading is only payable when leave is actually taken, not when it's paid out on termination.

This distinction can make a significant difference. If you've accumulated eight weeks of annual leave and your award provides for leave loading on termination, you'd receive 17.5% loading on all that accrued leave. That could amount to substantial additional income in your final pay.

The Decline of Leave Loading

It's worth noting that leave loading has been gradually phased out of many modern awards and agreements over the past two decades. The reasoning behind this varies, but often includes:

• Modern work patterns with less reliance on overtime
• Trade-offs for higher base rates of pay
• Administrative simplification
• Award modernization processes

If you're entering a new job or renegotiating your employment conditions, be aware that leave loading is increasingly becoming a point of negotiation rather than a standard entitlement.

How to Check If You're Entitled

To determine if you're entitled to leave loading, follow these steps:

1. Identify your award or agreement: Check your employment contract or pay slip to identify which modern award or enterprise agreement covers your employment.
2. Review the leave provisions: Look for sections dealing with annual leave in your award or agreement. Leave loading provisions are usually found here.
3. Check your pay slips: If you've taken annual leave before, review your pay slips from that period. Leave loading should appear as a separate line item.
4. Ask your employer: Your HR department or payroll officer should be able to confirm whether leave loading applies to your role.
5. Contact Fair Work: If you're still unsure, the Fair Work Ombudsman can help you understand your entitlements.

Common Questions About Leave Loading

Is leave loading taxed?

Yes, leave loading is considered ordinary income and is subject to standard income tax. It will be included in your regular pay and taxed accordingly.

Do casual employees get leave loading?

No. Casual employees don't accrue annual leave, so leave loading doesn't apply to them. Their casual loading is intended to compensate for the lack of leave entitlements.

Can leave loading be cashed out?

This depends on your specific award or agreement. Some allow for leave loading to be included when cashing out annual leave; others don't address it explicitly.

Is leave loading included in redundancy calculations?

Leave loading is typically paid on your accrued annual leave balance in a redundancy situation, but it's not usually included in redundancy pay calculations for service-based payments.

Conclusion

Leave loading remains a valuable entitlement for many Australian workers, providing a welcome boost to holiday pay. However, it's not universal, and you shouldn't assume you're entitled to it without checking your specific award or agreement. Understanding your entitlements ensures you receive the full benefits of your employment conditions.

If you discover you should have been receiving leave loading but haven't, you may be able to claim back pay for the amounts owed. The Fair Work Ombudsman can assist with recovering unpaid entitlements. Knowledge is power when it comes to your workplace rights, so take the time to understand exactly what you're entitled to receive.