Annual Leave Loading | Leave Entitlements & Pay
Since the Fair Work Act was introduced in 2009, there has been confusion about how annual leave loading should be paid. The interpretation of the section 90(2) of the Act can be identified as the main culprit for this issue. Let’s dive right into defining what leave loading is, who should receive it and whether it should be paid upon termination.
What is annual leave loading?
Essentially, leave loading is a payment made on top of the employee’s base rate of pay for usual hours worked. Leave loading is a wage supplement that was first introduced in the 1970s by the Labour movement. It is typically given to workers who do a lot of overtime, and is equivalent to 17.5 percent of their weekly wage.
When a person was on leave, they missed the opportunity to work overtime and earn extra income. As a consequence, this entitlement was created to compensate this imbalance. Today, it still applies to a number of modern awards and workplace agreements.
Who is entitled to it?
Any employee who is covered by a modern award or an enterprise level agreement provisioning for annual leave loading should be paid. Different modern awards can apply within the same organisation which means that employers need to be aware of the awards that apply to their employees.
Is Annual Leave Loading Payable upon termination?
As employees work, they accumulate leave balance. An employee who is terminated is entitled to be paid for both their accrued annual leave and annual leave loading. This means that the amount payable for any untaken annual leave must-include the 17.5% extra pay.
Most employment scenarios include annual leave loading as part of the termination payment, but some awards specifically exclude it. This rule extends into a significant percentage of Modern Awards where they state or imply that leave loading is not payable on termination.
This loosely contradicts the Fair Work Act which states, states in board terms that an employee must be paid the same annual leave entitlements on termination as they would if they had taken the leave during their employment. Some employers and employer organizations believe that the current legislation regarding annual leave loading is unclear and should be revised. They argue that the current law suggests that annual leave loading is payable upon termination, which goes against their views..
Leave loading, which is equivalent to 17.5 percent of a worker’s weekly wage, was established in the 1970s by the Labour movement. Leave loading was created to apply to industries where workers often did overtime. This was despite the enterprise agreement stating that upon termination of employment, employees were only entitled to payment of accrued annual leave based on their ordinary rate of pay plus an average of their bonus.
Section 90 of the Fair Work Act 2009 (FW Act), now states:
Payment for Annual Leave
If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.
If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
What employers need to do
It is imperative that employers comply with their obligations under the Fair Work Act. In the past few years, a number of legal battles have illustrated the confusion from employers in regards to the payment of leave loading. If you don’t pay wages and entitlements correctly, it will cost you a lot of money. This is something that The Fair Work Ombudsman and The Fair Work Commission take very seriously. As a fact, underpaid employees have the ability to seek repayments for up to six years after the termination of their employment.