Uncertain about annual leave loading? Here’s a legal guide on when and why it should be paid.

Holidays allow for a break from the grinding monotony of everyday life and should not be reserved for those who can afford the additional expenses. For many employees whose income is significantly supplemented with overtime, shift payments, and other additional allowances, it is the loss of these benefits while on annual leave that makes a holiday unaffordable. This was the rationale behind the introduction of annual leave loading.   

In short, annual leave loading is an additional payment over the employee’s usual base rate and is payable when the employee takes annual leave. Given some employees regularly undertake shift work (for example, nurses), their base rate of pay does not reflect the true amount of money they take home once their regular overtime and other allowances are taken into account. Annual leave loading, equivalent to 17.5 per cent of a week’s wage, is intended to compensate employees for the loss of that additional income while on annual leave.

The Origins

Annual leave loading stemmed from the mining boom in the 1960s when it seemed unfair that metal tradesmen would be on a substantially lower wage than usual while on holiday. The idea gained momentum in the 1970s, with the Whitlam government helping to drive forward movements to compensate workers for additional overtime and any other piecemeal payments while on annual leave.

In 1974, a landmark year for the benefit, an agreement reached between a patchwork of different industries and unions within New South Wales cleared the way for a ‘just and desirable’ 17.5 per cent annual leave loading. Following this agreement, and the decision of the NSW government to match its public servants annual leave loading to the federal level of 17.5 per cent.

A national standard?

While the right to paid annual leave is guaranteed within the National Employment Standards under section 84 of the Fair Work Act 2009, the right to annual leave loadingis not. Instead, it is enshrined within major federal awards and therefore only applicable to individuals employed under those awards, or individuals whose enterprise agreement or employment contract specifies such a loading.

Sectors covered by awards conferring annual leave loading include the fast food industry, the hair and beauty industry, the building and construction industry, clerical staff in the private sector and some public servants. These awards specify the loading must be either 17.5 per cent or the greater of weekend/shift penalty rates and the national standard.

A Delicate Balance

While inherent differences in perspective between employees and employers create significant potential for conflicting opinions, establishing a loading that compensates for regular additional wages earned through supplementary payments reflects the championed Australian ideal of giving everyone a fair-go.

Further, from a purely utilitarian perspective, employees that are well-rested after a refreshing holiday are more productive after returning to work than employees who are stressed about financing their holiday or, worse, disgruntled about being unable to afford a holiday in the first place.  

Viewed through the eyes of employers, it is understandable the loading may seem an unnecessary burden, particularly for employees who do not regularly receive overtime, shift or other additional payments. For example, the ACT Public Sector Enterprise Award 2016 mandates an annual leave loading of 17.5 per cent for public servants irrespective of whether they would ordinarily receive additional payments. Given many employees work regular business hours throughout the week, it is questionable whether giving them an additional 17.5 per cent above their usual salary during periods of annual leave is fair on the employer.   

However, while annual leave loading may seem unjust when applied to employees who work regular hours, nationally, the vast majority of employees who receive the loading also receive regular additional payments. Given this, the logic for enshrining the additional loading in their annual leave payments seems compelling enough to override employer concerns. Rather than focusing on the (potential) economic losses, employers should focus on the benefits from a rejuvenated and well-holidayed workforce.

A version of this article originally appeared in the May 2018 edition of HRM magazine. Written by Gabrielle Sullivan and Sarah Graham-Higgs of Bradley Allen Love Lawyers.