WHAT IS LEAVE LOADING FOR?
When the concept was first introduced into Australian awards over forty years ago, annual leave loading was intended to ensure that employees who went on leave did not suffer a reduction in their normal wages, because they lost opportunities to earn shift loadings and overtime. The entitlement has largely moved out of the realm of this argument, and now represents a form of annual leave bonus that is payable even in industries or occupations in which shift work and overtime are less prevalent.
WHAT IS THE NORMAL LEAVE LOADING REQUIREMENT?
Most federal modern awards prescribe some form of leave loading that is payable to employees whose work is covered by those awards. Leave loading is usually payable at the time an employee takes annual leave, and the most common loading is 17.5 per cent on top of the employee’s regular wages for annual leave. There are some exceptions, for example, such as employees who are covered by the Pulp and Paper Stream in the Timber Industry Award 2010 as they are entitled to a 20 per cent leave loading. In most awards, shift workers are entitled to the greater of their normal shift allowances, or the leave loading.
IF AN EMPLOYEE IS PAID OVER THE AWARD, ISN’T THE LOADING COVERED?
If an employee is paid more than the minimum entitlement under the relevant modern award, then it is possible for the employer and the employee to agree that part of the over award payment is to compensate for separately paid leave loading. This agreement would need to be in writing, and would need to comply with the Award’s flexibility provisions that are contained in each modern Award.
Sole traders and partnerships in Western Australia (WA) are not covered by the Federal system, but instead remain covered by State awards. Where a WA State award requires the payment of annual leave loading, these employers may also agree with an employee to pay over the award to cover the loading. The agreement would need to be in writing and must clearly identify that at least part of the over award payment is for leave loading.
As a rough guide, a 17.5 per cent annual leave loading is equivalent to approximately 1.34 per cent of an employee’s total annual wage or salary. This figure increases to
1.67 per cent of total annual salary if the employee is a shift worker who is entitled to five weeks’ annual leave.
WHAT IF AN EMPLOYEE IS NOT COVERED BY AN AWARD?
Award free employees do not get annual leave loading, as the usual source of the entitlement is an award. However, check if the employment contract mentions leave loading, or if the employer has a policy covering award free employees regarding leave loading.
A SPECIAL NOTE FOR VICTORIANS
In 1992, the State Government of Victoria enacted the Annual Leave Payments Act 1992, which removed the requirement for employers to leave loading to employees working under Victorian State awards. However, private sector employers in Victoria are now in the federal industrial relations system, so that legislation is no longer relevant. This means that most award or agreement covered employees in Victoria are entitled to annual leave loading.
WHAT IS THE IMPACT OF AN ENTERPRISE AGREEMENT?
There are agreements lawfully in place that exclude annual leave loading. This might include Enterprise Bargaining Agreements, Employee Collective Agreements, Union Collective Agreements and Enterprise Agreements. Agreements that have passed their expiry date usually continue to be enforceable. Make sure you check the terms of the agreement to see if annual leave loading is payable.
IS LEAVE LOADING PAYABLE WHEN AN EMPLOYEE LEAVES?
This is an area of confusion across the country. The National Employment Standards (NES) clearly require the payment of leave loading, but many modern awards contain contradictory terms. It has also been argued that as annual leave loading is not part of the NES, it should not be counted as a payment required by the NES.
The Timber Industry Award 2010, for example, specifically states that when an employee leaves, they don’t get paid leave loading on annual leave that accrued since the employee’s last anniversary of employment, i.e. leave loading is not payable on proportionate leave. The award provides limited exceptions to this rule, such as when an employee is made redundant.
The NES states that on termination, an employee is to be paid out their accrued annual leave based on what they would have been paid had they taken the leave. The Fair Work Ombudsman will therefore tell employers and employees alike that regardless of the specific terms of the relevant award, if an employee would have been entitled to leave loading had they taken holidays, it must be paid when an employee leaves. The Ombudsman could potentially decide to prosecute any employer who does not comply with their view of the legislation.
In February 2014, legislation was introduced into the Federal House of Representatives that will ensure that what the award states is what is required.
The Act has not yet passed the Senate.