Leave loading
Definition
Leave loading
Leave loading is an extra payment, usually 17.5%, added to an employee’s base wage while they take annual leave in Australia. It compensates workers for income they would have earned through overtime, shift penalties, or commissions had they kept working. Eligibility hinges on the relevant modern award, enterprise agreement, or contract.
Key takeaways
- Leave loading adds 17.5% to base pay during annual leave under most Australian modern awards.
- It originated in the 1970s to offset lost overtime and shift penalty earnings during holidays.
- Award-covered employees almost always qualify; award-free salaried staff usually do not.
- Any accrued loading must be paid out on termination when the underlying award requires it.
- The 17.5% is taxed as ordinary income — the longstanding tax-free concession ended in 2012.
Australia is one of the few countries that still pays a separate holiday top-up. Most jurisdictions either bake the premium into base wages or skip it entirely. That makes leave loading a recurring source of confusion for offshore payroll teams and for global firms running Australian subsidiaries.
The rule sits inside the broader annual leave framework set by the Fair Work Act 2009 and policed by the Fair Work Ombudsman. Get it wrong and you are looking at back-pay, interest, and potential civil penalties.
How it works
Leave loading is calculated as a flat percentage — almost always 17.5% — applied to an employee’s ordinary base rate for the hours of annual leave they take. The Fair Work Ombudsman confirms the 17.5% figure as the standard built into the bulk of modern awards (Fair Work Ombudsman, Annual leave).
The mechanic is simple. If a clerk earns A$1,200 a week and takes a week of annual leave, the employer pays A$1,200 plus 17.5%, or A$1,410 in total. Some awards let employers pay the higher of leave loading or the shift/penalty rates the worker would have earned — whichever favours the employee.
| Element | Standard treatment |
|---|---|
| Loading rate | 17.5% of base wage |
| Trigger | Hours of paid annual leave taken |
| Tax (since 2012) | Taxed as ordinary income, PAYG withheld |
| Superannuation | Payable on loading where it relates to ordinary time earnings (ATO Ruling SGR 2009/2) |
| Termination pay-out | Required if the source award/agreement says so |
Three documents decide whether a worker actually gets it: the modern award, any enterprise agreement, and the individual contract. Award terms cannot be undercut. Contracts can match or beat the floor, but never sit beneath it.
A 2017 Australian Taxation Office update clarified that superannuation must be paid on leave loading unless the employer can show, in writing, that the loading is specifically tied to lost overtime (ATO, Super on annual leave loading). Most employers now just pay super on it by default, which is cheaper than litigating the carve-out.
Examples
Real workplaces show how varied the treatment is.
A unionised construction labourer in Sydney works under the Building and Construction General On-site Award. They take two weeks off in January 2025. Base pay for the fortnight is A$2,800. Loading adds A$490, bringing the leave payment to A$3,290 before tax.
A hotel front-desk attendant covered by the Hospitality Industry (General) Award gets the higher of 17.5% loading or the shift penalties they would have earned. A worker rostered on weekend night shifts can end up better off claiming the penalty alternative than the flat 17.5%.
A software engineer on a A$160,000 award-free contract with an annual-salary clause that says pay “absorbs all loadings” gets no separate top-up. The contract has to spell that out — and the total package must still beat the award equivalent.
A registered nurse leaving a NSW Health role in 2024 receives a final pay run that includes 17.5% loading on the 145 hours of accrued annual leave on her balance, paid out under the Nurses and Midwives (NSW Health Service) Award.
Offshore BPO providers in the Philippines handling Australian payroll routinely flag leave loading as the single most-asked-about pay item. The fix is usually a clean mapping of every Australian employee to their governing award before the first pay cycle runs.
Related terms
- Annual Leave: the paid time-off entitlement to which leave loading attaches under Australian law.
- Modern Award: the legally binding industry instrument that usually sets the 17.5% rate.
- Enterprise Agreement: a negotiated workplace deal that can vary loading terms above the award floor.
- PAYG Withholding: the income-tax mechanism applied to loading payments since 2012.
- Long Service Leave: a separate Australian tenure-based leave entitlement that may also attract loading.
- Payroll Outsourcing: the service category covering offshore handling of Australian leave entitlements.
- Employee Benefits: the broader compensation category in which leave loading sits.
FAQ
Is leave loading still tax-free in Australia?
No. The Australian Taxation Office removed the A$320 tax-free concession from 1 July 2012. Leave loading is now taxed as ordinary income, with PAYG withholding applied like 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. Award-free salaried staff usually do not receive it unless the contract spells it out, and managers paid an “all-up” annual salary often have loading absorbed into base pay.
Is super payable on leave loading?
Yes, in most cases. Since 2017 the ATO has treated leave loading as part of ordinary time earnings unless the employer can document that the loading specifically relates to lost overtime. Paying super on it is now the safer default.
What happens to accrued leave loading when an employee resigns?
If the governing award or agreement requires loading on annual leave, the employer must pay 17.5% on any accrued but untaken annual leave at termination. Forgetting this is one of the most common Fair Work claims filed against small employers.
Do other countries have leave loading?
Almost none use the same model. New Zealand pays holiday pay at a higher percentage built into base rates, while most US, UK, and Asian jurisdictions roll any premium into base wages or skip it entirely. The Australian 17.5% remains unusual globally.
Need a payroll partner that handles Australian leave loading without the audit risk? Browse vetted BPO providers on Outsource Accelerator to find a team that already runs award-compliant pay cycles.
Independent
