Leave loading
Definition
Leave loading
Leave loading is an extra payment, usually 17.5%, added to an Australian worker’s base wage during annual leave. It replaces the overtime and shift penalties they lose by taking time off. It flows from an award or agreement, not the National Employment Standards.
Australia is one of the very few countries that still pays a separate holiday top-up. Most other jurisdictions build the premium into base wages or skip it, which is why the 17.5% surprises finance teams on their first Australian pay run.
The entitlement attaches to annual leave under the Fair Work Act 2009 and is policed by the Fair Work Ombudsman, Australia’s workplace regulator. Get it wrong and you face back-pay, interest, and civil penalties.
It does not reach offshore contractors — a delivery team in Manila sits outside Australian award coverage entirely, which is exactly why buyers costing an offshore build ask about loading so early.
Key takeaways
- Leave loading adds 17.5% to base pay during annual leave under most Australian modern awards.
- It began in the 1970s to offset the overtime and shift penalties lost during holidays.
- Award-covered staff almost always qualify; award-free salaried employees usually do not.
- Accrued loading is paid out at termination whenever the governing instrument requires it.
- The 17.5% is taxed as ordinary income; the tax-free concession ended on 1 July 2012.
How it works
Leave loading is a flat percentage, almost always 17.5%, applied to an employee’s ordinary base rate for the hours of annual leave they actually take. It is paid at the same time as the leave itself, through the normal pay cycle.
The maths is simple. A clerk on A$1,200 a week who takes one week off is paid A$1,200 plus 17.5%, or A$1,410. Some awards pay the higher of the loading or the penalty rates the worker would otherwise have earned.
Three documents decide entitlement: the modern award, any enterprise agreement, and the individual contract. The award sets the floor. A contract can beat that floor, but it can never sit beneath it.
Guidance from the Fair Work Ombudsman on annual leave sets out how loading sits inside the wider entitlement, including what happens when leave is cashed out or paid on termination.
| Element | Standard treatment |
|---|---|
| Loading rate | 17.5% of the ordinary base rate |
| Trigger | Hours of paid annual leave actually taken |
| Source instrument | Modern award, enterprise agreement, or contract |
| Tax (since 1 July 2012) | Ordinary income, PAYG withheld |
| Superannuation | Payable unless the loading is demonstrably referable to lost overtime |
| Termination pay-out | Required where the source instrument says so |
Superannuation turns on a single test. The Australian Taxation Office (ATO) treats leave loading as ordinary time earnings, so super is payable, unless the employer holds written evidence that the loading is referable to lost overtime.
That written evidence is rare, so most employers now pay super on loading by default — documenting the carve-out costs more than the contribution ever does. The ATO’s super guidance for employers sets the obligation, with Ruling SGR 2009/2 as the underlying authority.
Tax is settled. Since 1 July 2012 loading has been taxed as ordinary income, with PAYG withholding applied exactly as it is to any other wage payment. The old A$320 concession is long gone.
Examples
Treatment varies sharply by award, by state, and by whether the worker sits inside award coverage at all. These five cases, drawn from ordinary Australian pay scenarios, show where the 17.5% lands and where it quietly disappears.
A construction labourer in Sydney works under the Building and Construction General On-site Award and takes two weeks off in January 2025. Base pay for the fortnight is A$2,800. Loading adds A$490, so the leave payment reaches A$3,290 before tax.
A hotel front-desk attendant covered by the Hospitality Industry (General) Award receives the higher of the 17.5% or the shift penalties forgone. A worker rostered on weekend nights is often better off claiming the penalty alternative.
A software engineer on a A$160,000 award-free contract with an annual-salary clause stating that pay absorbs all loadings gets no separate top-up. The clause has to be explicit, and the total package must still beat the award equivalent.
A registered nurse leaving a NSW Health role in 2024 has 145 hours of accrued annual leave on her final balance. Her termination pay includes 17.5% loading on those hours under the Nurses and Midwives (NSW Health Service) Award.
BPO providers in the Philippines that run Australian payroll consistently flag loading as the most-queried pay item. Their own Manila staff never accrue it — Philippine labour law carries no equivalent holiday premium, and no award system to trigger one.
That split matters when you model costs. You can browse vetted BPO providers on Outsource Accelerator and ask each one how it maps every Australian employee to a governing award before the first pay cycle runs.
Related terms
- Annual Leave: the paid time-off entitlement that leave loading attaches to under Australian law.
- Modern Award: the binding industry instrument that usually sets the 17.5% rate.
- Enterprise Agreement: a negotiated workplace deal able to vary loading terms above the award floor.
- PAYG Withholding: the income-tax mechanism applied to loading payments since 2012.
- Long Service Leave: a separate tenure-based Australian entitlement that may also attract loading.
- Payroll Outsourcing: the service category covering offshore handling of Australian leave entitlements.
- Employee Benefits: the wider compensation category in which leave loading sits.
FAQ
Is leave loading still tax-free in Australia?
No. The ATO removed the A$320 tax-free concession from 1 July 2012, so loading is now taxed as ordinary income. PAYG withholding applies exactly as it does to any other wage payment.
Does every Australian employee get 17.5% leave loading?
No. Coverage depends on the modern award, enterprise agreement, or contract that applies to the role. Award-free salaried staff usually miss out unless the contract says otherwise, and all-up salaries often absorb the loading.
Is super payable on leave loading?
Usually yes. The ATO treats leave loading as ordinary time earnings, so superannuation is payable unless the employer holds written evidence that the loading is demonstrably referable to lost overtime. That evidence is rare in practice.
What happens to accrued leave loading when an employee resigns?
Where the governing award or agreement requires loading on annual leave, the employer pays 17.5% on the accrued but untaken balance at termination. Missing that final top-up is a common underpayment claim against small employers.
Do other countries have leave loading?
Almost none do — New Zealand builds a higher holiday rate into base pay, and most US, UK, and Asian jurisdictions skip the premium.
If you want a payroll partner that already runs award-compliant Australian pay cycles, compare vetted teams in the Outsource Accelerator directory.
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