Annual leave loading in Australia: What it is and what employers must pay

Published Friday 10 July 2026

Table of contents

• What is annual leave loading?
• Who gets annual leave loading in Australia?
• How much is annual leave loading and when is it paid?
• How to calculate annual leave loading
• Annual leave loading on termination
• Is super paid on annual leave loading?
• How is annual leave loading taxed?
• Manage annual leave loading and payroll with Xero
• FAQs on annual leave loading

Key takeaways

• Annual leave loading, typically 17.5% of base pay, is only payable if the employee's modern award, enterprise agreement, or contract includes it.
• Apply the loading percentage to the employee's ordinary base rate, excluding overtime, penalty rates, and most allowances.
• If an employee leaves with unused annual leave and is entitled to loading, you must include the loading in their final pay.
• Leave loading is taxable income subject to PAYG withholding, and whether super applies depends on the purpose of the loading under ATO ordinary time earnings rules.

What is annual leave loading?

Annual leave loading is an additional payment made to eligible employees when they take annual leave. In Australia, it typically equals 17.5% of an employee's base rate of pay, though the exact percentage and entitlement depend on the award, enterprise agreement, or employment contract that covers the employee.

The concept of annual leave loading was introduced to compensate employees who might otherwise lose penalty rates, shift allowances, or overtime opportunities while on leave. Only employees covered by an award, enterprise agreement, or contract that includes annual leave loading are entitled to receive it.

Why leave loading exists

Historically, annual leave loading emerged through union negotiations to ensure workers who regularly earned penalty rates or worked overtime weren't financially penalized for taking a holiday. If a shift worker earning weekend penalty rates took leave, they'd receive only their base pay during that time. The loading aimed to bridge that gap.

Today, annual leave loading remains embedded in many modern awards and enterprise agreements, though its application varies widely across industries and roles. It's not a statutory entitlement under the National Employment Standards (NES). Instead, it applies only where an award, agreement, or contract explicitly includes it.

What annual leave loading is not

Annual leave loading is not the same as annual leave itself. All permanent employees in Australia are entitled to four weeks of paid annual leave per year under the NES annual leave rules. Annual leave loading is an additional payment on top of that leave, and only applies if the employee's industrial instrument (in other words, the agreement) requires it.

It's also separate from penalty rates, which are higher pay rates for working extra hours such as on weekends, public holidays, or night shifts. While loading may compensate for the loss of penalty rates during leave, it doesn't replace them.

Who gets annual leave loading in Australia?

Not all Australian employees receive annual leave loading. Entitlement depends entirely on the industrial instrument that covers the employee, such as a modern award, an enterprise agreement, or an individual employment contract.

Coverage under modern awards

Many modern awards include annual leave loading provisions, but not all. If your employee is covered by an award, you'll need to check the specific award document to confirm whether loading applies, at what rate, and under which conditions.

For example, some awards provide annual leave loading at 17.5% of the base rate, while others may set a different percentage or cap the maximum amount payable. Shift workers under certain awards may be entitled to a higher loading rate to reflect the greater loss of penalty rates during leave.

Coverage under enterprise agreements

If your business operates under an enterprise agreement, the terms of that agreement will determine whether annual leave loading is payable. Enterprise agreements are negotiated between employers and employees, often with union involvement, and can include leave loading provisions that differ from award rates.

Always refer to the registered agreement to confirm the loading percentage, caps, and payment timing. Enterprise agreements override modern awards where they apply, so the agreement terms take precedence.

Coverage under employment contracts

For employees not covered by an award or agreement, annual leave loading may still be included in their individual employment contract. If the contract specifies a loading entitlement, you're legally obliged to pay it as agreed.

However, if the contract is silent on loading and no award or agreement applies, there's no automatic entitlement. In such cases, annual leave loading is discretionary and depends on what you've agreed with the employee.

Who typically doesn't get leave loading

Casual employees generally don't receive annual leave loading because they don't accrue annual leave in the first place. Instead, casuals receive a loading on their ordinary hourly rate, often 25%, to compensate for the lack of leave entitlements.

Some salaried employees, particularly those on higher incomes or in senior roles, may also have contracts that exclude annual leave loading if the salary package is structured to account for all entitlements in a single annual figure.

How much is annual leave loading and when is it paid?

The standard annual leave loading rate in Australia is 17.5% of an employee's base rate of pay, though this isn't universal. The exact percentage, caps, and payment timing depend on the award, enterprise agreement, or contract that applies.

Standard loading rate

Most modern awards that include annual leave loading set the rate at 17.5%. This percentage is applied to the employee's ordinary base rate for the period of leave taken, excluding overtime, penalty rates, and most allowances.

For example, if an employee's base weekly rate is $1,000 and they take one week of annual leave, the loading would be:

$1,000 × 17.5% = $175

The employee would receive $1,000 in base leave pay plus $175 in loading, totaling $1,175 for that week of leave.

Variations and caps

Some awards and agreements set different loading rates or impose caps. For instance, shift workers under certain awards may receive a higher loading rate, sometimes up to 20%, to reflect the greater loss of penalty rates and shift allowances during leave.

Caps may also apply. An award might state that annual leave loading is "17.5% of the base rate or the value of the penalty rates the employee would have received, whichever is less". This prevents an employee from being compensated twice for the same penalty rates.

Always check the specific instrument to confirm the rate, any caps, and how to calculate the loading for part-time or irregular-hours employees.

When is leave loading paid?

Payment timing for annual leave loading varies. Common approaches include:

• When leave is taken: Loading is paid in the same pay cycle as the leave itself, so the employee receives base leave pay plus loading together.
• Annually in advance: Some agreements allow loading to be paid once a year, often at the start of the leave year or before the employee takes their main annual leave period.
• On termination: If an employee leaves with unused annual leave, any applicable annual leave loading must be paid out in their final pay, along with the leave itself.

Check your award or agreement for the required timing. Paying leave loading on time and correctly supports compliance and helps maintain employee trust.

How to calculate annual leave loading

Calculating annual leave loading accurately helps you stay compliant and build employee trust. Follow this step-by-step process to calculate it correctly.

1. Check the award or agreement

Before you calculate anything, confirm whether annual leave loading applies to the employee. Review the modern award, enterprise agreement, or employment contract to check:

• whether loading is payable
• the percentage rate (commonly 17.5%, but sometimes different)
• any caps or maximum amounts
• special rules for shift workers or part-time employees
• when loading must be paid: during leave, annually, or on termination

If the instrument doesn’t specify loading, the employee is only entitled to it if you have explicitly agreed to it in their contract. Take time to understand the specific provisions, as they can vary significantly between different awards and agreements.

2. Confirm the base rate of pay

Annual leave loading is calculated on the employee's ordinary base rate of pay, not their total earnings. The base rate excludes overtime payments, penalty rates for weekends, public holidays, or night shifts, bonuses and commissions, and most allowances (unless the award specifically includes them in the base rate).

For example, if an employee earns $1,200 per week including $200 in weekend penalty rates, their base rate for loading purposes is $1,000, not $1,200. If you're unsure what counts as base pay under your award, check the award's definitions or seek advice from Fair Work or a workplace relations specialist.

3. Apply the loading percentage

Once you've confirmed the base rate and the loading percentage, the calculation is straightforward. Use this formula:

Annual leave loading = (Base rate × Leave period) × Loading percentage.

For example, an employee takes two weeks of annual leave. Their base weekly rate is $1,000, and their award provides 17.5% loading. The calculation uses the following steps:

1. Base leave pay: $1,000 × 2 = $2,000
2. Loading: $2,000 × 17.5% = $350
3. Total payment: $2,000 + $350 = $2,350

The employee receives $2,350 for two weeks of leave.

4. Factor in proration and caps

For part-time employees, pro-rate the loading based on their ordinary hours. If a part-time employee works 20 hours per week, or 0.5 FTE (full time equivalent), and that FTE base rate is $1,000 per week, their pro-rated base rate is $500. Apply the loading percentage to that pro-rated amount.

If the award or agreement imposes a cap, such as 17.5% or the value of penalty rates lost, whichever is less, calculate both amounts and pay the lower figure. Document your calculation to demonstrate compliance and ensure you can explain your approach if questioned.

5. Record and report correctly

Show annual leave loading as a separate line item on the employee's payslip. This transparency helps employees understand their entitlements and makes audits easier. Keep detailed records of the award or agreement clause that entitles the employee to loading, the base rate used in the calculation, the loading percentage and any caps applied, and the payment date and pay period.

If your payroll system supports it, automate the loading calculation by setting up pay items that apply the correct percentage to the base rate whenever leave is taken. This reduces manual errors and ensures consistency. For complex cases, such as employees with variable hours, multiple pay rates, or shift penalties, consider using an Australian annual leave calculator or consulting a payroll specialist to validate your approach.

Annual leave loading on termination

When an employee leaves your business, any unused annual leave must be paid out in their final pay. If that employee is entitled to annual leave loading under their award, enterprise agreement, or contract, the loading must also be paid on that unused leave balance.

How to calculate the payout

The calculation follows the same method used when an employee takes leave during employment. Apply the loading percentage to the base rate of pay for the period of accrued leave.

For example, if an employee has two weeks of unused annual leave, a base weekly rate of $1,000, and is entitled to 17.5% loading, the total termination payout is also $2,350.

Show the leave and the loading as separate line items on the employee's final payslip.

Which termination types are covered

Annual leave loading on termination applies in all of the following scenarios:

• Resignation: The employee chooses to leave and has unused leave.
• Redundancy: The role is eliminated and unused leave is paid out as part of the redundancy package.
• Dismissal: The employee is terminated by the employer and has an accrued leave balance.

Check your award or enterprise agreement for any specific rules about loading on termination, including whether a cap applies to the payout amount.

Is super paid on annual leave loading?

Whether superannuation is payable on annual leave loading depends on the purpose of the loading and how it's treated under Australian Taxation Office ordinary time earnings rules.

General rule

Superannuation is payable on an employee's ordinary time earnings (OTE). OTE includes regular wages and salary, but whether annual leave loading counts as OTE depends on why it's being paid.

The ATO distinguishes between two types of leave loading:

• Loading paid to compensate for lost overtime or penalty rates: If the loading is paid to make up for overtime or penalty rates the employee would have earned if they were working instead of on leave, it's not OTE and super is not payable.
• Loading paid for any other reason: If the loading is simply an additional payment on top of base leave pay, not tied to compensating for lost overtime or penalties, itis OTEand superis payable.

How to determine the purpose

Check the modern award, enterprise agreement, or contract to see if it states the purpose of the loading. If the instrument says the loading compensates for lost overtime or penalty rates, you don't need to pay super on it. If it's silent or describes the loading as a general entitlement, super is likely payable.

Document your reasoning. If you're treating loading as non-OTE because it compensates for lost penalties, keep a record of the award clause or agreement provision that supports that interpretation. This protects you in the event of an audit or employee query.

What if the instrument is unclear?

If the award or agreement doesn't specify the purpose, consult the ATO's guidance on leave loading and OTE, or seek advice from a registered tax agent or payroll specialist. The ATO has published examples and fact sheets that clarify when super applies.

In practice, many employers default to paying super on annual leave loading to avoid compliance risk, especially if the loading isn't explicitly tied to penalty rate compensation. This conservative approach ensures you meet your super guarantee obligations.

Practical actions

Review the award, agreement, or contract to determine the loading's purpose, check the ATO's guidance on ordinary time earnings for leave loading, document your decision and the basis for it, set up your payroll system to apply super correctly based on that decision, and review the treatment annually or whenever the award or agreement changes.

If you're unsure, paying super on the loading is the safer option. This approach helps you meet your super guarantee obligations and avoid future corrections.

How is annual leave loading taxed?

Annual leave loading is taxable income. It is subject to Pay As You Go (PAYG) withholding in the same way as ordinary wages, and is included in the employee's taxable earnings for the pay period in which it is paid.

Show leave loading as a separate line item on the payslip, but include it in the total earnings figure when calculating how much tax to withhold.

Is the first $320 of leave loading tax-free?

Under Australian Taxation Office rules, the first $320 of leave loading may be exempt from withholding tax in certain circumstances. For this exemption to apply, all of the following conditions must be met:

• the loading is paid in direct connection with a period of ordinary annual leave
• the loading is not compensation for lost overtime; if it compensates for lost overtime, the full amount is taxable
• the total leave loading paid in the income year does not exceed $320

If the loading exceeds $320, the entire amount is subject to withholding, not just the portion above that amount. The exemption applies to the full $320 only when the total loading paid is that amount or less.

Check the ATO's guidance on PAYG withholding or speak with a registered tax agent to confirm how this applies to your specific payroll arrangements.

Does payment timing affect tax treatment?

Yes. Leave loading paid at the time an employee takes leave is treated as income in that pay period. Leave loading paid annually in advance, or as a lump sum, may be subject to different withholding calculations depending on the amount and the ATO's marginal rate schedules. If you pay loading as an annual lump sum, use the ATO's tax withheld calculator to confirm the correct withholding amount.

Manage annual leave loading and payroll with Xero

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FAQs on annual leave loading

This section answers common questions about annual leave loading in Australia. It covers eligibility, calculation, superannuation, and compliance to help you manage leave entitlements with confidence.

Do part-time employees get annual leave loading?

Yes. If the relevant award, enterprise agreement, or contract includes annual leave loading, you must pay it to part-time employees based on their ordinary hours and base rate.

Can an employer refuse to pay leave loading?

You must pay annual leave loading whenever an employee is entitled to it under their modern award, enterprise agreement, or employment contract. Failing to do so is a breach of the industrial instrument and can result in penalties, back payments, and legal action.

Can leave loading be rolled into a salary?

In some cases, annual leave loading can be included in an annualized salary arrangement, where the employee receives a set annual salary that covers base pay, leave, loading, and other entitlements. However, this must be clearly documented in the employment contract, and the total salary must be at least equal to what the employee would have received if each entitlement were paid separately. Annualized salary arrangements are subject to strict rules under the Fair Work Act. You must conduct regular reconciliations to ensure the employee isn't worse off, and you must keep detailed records.

Do modern awards always include leave loading?

No, not all modern awards include annual leave loading provisions. Whether loading applies depends on the specific award that covers your employee. You'll need to check the award document to confirm if loading is payable, at what rate, and under what conditions.

How do I fix underpayment or back-pay leave loading?

If you discover you've underpaid annual leave loading, calculate the shortfall immediately and pay it as soon as possible. Include interest if required by the award or agreement, and document the error and correction for your records. Consider conducting a payroll audit to identify any other potential underpayments, and update your payroll processes to prevent future errors. If the underpayment is significant or affects multiple employees, seek advice from Fair Work or a workplace relations specialist.