Last updated: 5 October 2026. Written by the FreeMyCloud team.
Checked against the Fair Work Ombudsman, the modern award texts on fairwork.gov.au and the ATO on 5 October 2026.
Annual leave loading is an extra payment, usually 17.5% of the employee’s base pay for the leave, paid on top of normal pay when an employee takes annual leave. It is not part of the National Employment Standards. An employee gets leave loading in Australia only when their modern award, enterprise agreement or employment contract says so, and most modern awards do. Under many awards the 17.5% is compared with the penalty rates or shift loading the employee would have earned, and the employee gets whichever is higher.
This guide is for Australian business owners, office managers and payroll staff. It covers who gets annual leave loading, how to calculate it (with a calculator you can use on this page), what five common awards say, how it is taxed, whether super is paid on it, and what happens when an employee leaves.
- What is it? An extra payment on top of base pay during annual leave, set by an award, agreement or contract.
- How much? Usually 17.5% of base pay for the leave, or the penalty rates or shift loading the employee would have earned if that is higher.
- Who gets it? Full-time and part-time employees whose award, agreement or contract includes it. Casuals do not get paid annual leave, so they do not get leave loading.
- Is it taxed? Yes. It is added to normal earnings for PAYG withholding in the pay it is paid in.
- Is super paid on it? Yes, at 12% in 2026-27, unless written evidence shows the loading is paid only for lost overtime. No super is due on loading in the final payout of unused leave.
- Is it paid on termination? Yes, on unused annual leave, if the employee would have received it when taking the leave.
What is annual leave loading?
Annual leave loading is an additional amount paid to some employees when they take annual leave. The Fair Work Ombudsman’s page on payment for annual leave puts it plainly: it “doesn’t apply to all employees and depends on what their award or enterprise agreement says.”
The base payment for annual leave comes from the National Employment Standards. Under section 90 of the Fair Work Act 2009, annual leave is paid at the employee’s base rate of pay for their ordinary hours. Base rate excludes overtime, penalty rates and most allowances. That is the gap leave loading was designed to fill. An employee who normally earns weekend penalties or shift loadings would take a pay cut every time they went on holiday. The loading softens that cut.
Because the NES do not require it, an award-free employee on a contract that says nothing about leave loading has no entitlement to it. For everyone else, the award or agreement decides three things: whether it applies, the percentage, and what it is calculated on.
Who gets annual leave loading in Australia?
Full-time and part-time employees accrue 4 weeks of paid annual leave a year under the NES, pro rata to their ordinary hours (the Fair Work Ombudsman’s annual leave page gives the example of a 20-hour-a-week part-time employee accruing 80 hours a year). Some shiftworkers get a fifth week. Where the award includes leave loading, it applies to all of that leave.
Casual employees do not get annual leave loading. Casuals do not accrue paid annual leave, and their casual loading (usually 25%) is paid instead of leave entitlements. The General Retail, Hospitality and Fast Food awards each state that the annual leave clause “does not apply to casual employees.”
There are three common situations where an employee covered by an award does not receive leave loading as a separate line on their pay slip:
- an annualised wage arrangement permitted by the award or agreement that already includes the loading
- a contractual offsetting arrangement, where an above-award salary is expressly set to absorb the loading
- an individual flexibility arrangement that varies the leave loading clause, provided the employee is better off overall
The Fair Work Ombudsman lists all three in its library article Annual leave loading in awards and agreements. Each needs to be documented. A loading that is simply not paid, with nothing in writing, is an underpayment.
Paying more than the award rate does not, on its own, replace the loading. Whether the 17.5% is calculated on the award rate or the higher actual rate depends on the award’s wording. The Hospitality Award calculates it on “the amount payable to the employee under the NES”, which follows the employee’s actual base rate. The Clerks and Retail awards calculate it on the minimum hourly rate.
How is leave loading calculated?
The simplest case is a flat 17.5% loading on base pay for the leave. The steps are:
- Work out the leave pay: base hourly rate × ordinary hours of leave taken.
- Multiply the leave pay by 17.5% (0.175). That is the leave loading.
- Add the two together for the total paid for the period of leave.
The table below uses an illustrative base rate of $30.00 an hour for a 38-hour week. It is not an award rate; substitute the employee’s own rate.
| Leave taken (at $30.00 an hour) | Leave pay | 17.5% leave loading | Total paid |
|---|---|---|---|
| 1 week, full-time (38 hours) | $1,140.00 | $199.50 | $1,339.50 |
| 2 weeks, full-time (76 hours) | $2,280.00 | $399.00 | $2,679.00 |
| 4 weeks, full-time (152 hours) | $4,560.00 | $798.00 | $5,358.00 |
| 4 weeks, part-time at 20 hours a week (80 hours) | $2,400.00 | $420.00 | $2,820.00 |
When the 17.5% is compared with penalty rates
Many awards do not stop at 17.5%. They say the employee gets the greater of the 17.5% loading or the penalty rates or shift loading they would have earned for the same ordinary hours. Suppose a retail employee on $30.00 an hour would have worked 38 ordinary hours that week, including weekend hours that would have earned $250.00 in penalties. The 17.5% loading is $199.50. The penalties are higher, so the additional payment for that week is $250.00, not $199.50.
The Fair Work Ombudsman’s own example works the same way the other direction. A warehouse shiftworker under the Storage and Wholesale Award with a 15% afternoon shift loading is paid the 17.5% loading on leave, because 17.5% is the higher of the two.
Leave loading calculator
This annual leave loading calculator works out a flat-percentage loading and the super guarantee on it. It does not apply the penalty-rate comparison above, so use it for employees whose award pays a flat 17.5%, or as the first half of the comparison. The Fair Work Ombudsman’s Leave Calculator handles award-specific rules.
| Leave pay | |
| Annual leave loading | |
| Total gross for the leave | |
| Super guarantee at 12% (if the loading is qualifying earnings) |
Illustration only. Does not calculate PAYG withholding or award penalty comparisons.
What do the modern awards say about annual leave loading?
Every award sets its own rule. The table summarises five of the most common, from the award text on fairwork.gov.au as at 5 October 2026. Always read the current clause for the employee’s award before setting up the pay item.
| Award | Clause | What the employee gets |
|---|---|---|
| Clerks (Private Sector) Award MA000002 | 32.3 | Greater of 17.5% of the minimum hourly rate, or the weekend penalty rates (day workers) or shift and weekend penalty rates (shiftworkers) for the ordinary hours. |
| General Retail Industry Award MA000004 | 28.3 | Greater of 17.5% of the minimum hourly rate, or the penalty rates (non-shiftworkers) or shiftwork rates (shiftworkers) for all ordinary hours. |
| Hospitality Industry (General) Award MA000009 | 30.3 | 17.5% on the amount payable under the NES for the leave, including untaken leave paid when employment ends. |
| Fast Food Industry Award MA000003 | 22.2 | Greater of 17.5% of the minimum hourly rate, or the weekend penalty amounts for ordinary hours the employee would have worked on a weekend. |
| Building and Construction General On-site Award MA000020 | 31.2 | 17.5% on what the employee would have received for ordinary hours (not just base rate); shift loading instead if greater for shiftworkers. Also payable on leave paid out on termination. |
Two patterns stand out. Retail, fast food and clerical awards compare the loading with weekend penalties, so a weekend-heavy roster can produce a bigger payment than 17.5%. The Building Award applies the 17.5% to the employee’s full ordinary-time earnings, which already include some allowances. Applying 17.5% to the wrong base is an easy mistake to make, and it tends to repeat every pay run because it sits in a single pay item that nobody rechecks against the award. Our guide to hospitality payroll and penalty rates covers award coverage in more detail.
How is annual leave loading taxed?
Leave loading is ordinary assessable income for the employee and PAYG withholding applies to it. How the employer works out the withholding depends on when and how it is paid. The ATO sets this out in Schedule 1, allowances, leave and other payments and Schedule 7 (which applies to payments made from 1 July 2026).
| How the loading is paid | Withholding method |
|---|---|
| With the leave, pro rata, in a normal pay | Add it to the earnings for that pay and withhold from the total using the normal tax table. |
| As a separate lump sum during employment (some employers pay it once a year) | Use Schedule 5, the tax table for back payments, commissions, bonuses and similar payments. |
| On termination, normal reasons (resignation, retirement), leave accrued after 17 August 1993 | Marginal rates, using the Schedule 7 marginal rate calculation. Included in salary and wages. |
| On termination, normal reasons, leave accrued before 18 August 1993 | 32%. Reported as lump sum A. |
| On termination for genuine redundancy, invalidity or an early retirement scheme (any accrual date) | 32%. Reported as lump sum A. |
In Single Touch Payroll Phase 2, annual leave and leave loading paid during employment are reported as paid leave type O (other paid leave), including leave that is cashed out. The one exception, in the ATO’s disaggregation of gross guidelines, is loading clearly linked to a lost opportunity to work overtime, which is reported as overtime. Unused leave paid on termination goes in as paid leave type U. Our PAYG withholding guide covers the tax tables and the dates the withholding is reported and paid.
Is super paid on leave loading?
Usually, yes. From 1 July 2026, under Payday Super, the super guarantee is 12% of each employee’s qualifying earnings, and must reach the fund within 7 business days of payday (see our Payday Super guide). The ATO’s page on super on annual leave loading says annual leave loading “is included in qualifying earnings unless it is clearly linked to lost overtime.”
The exclusion is narrow. To leave the loading out, the employer needs written evidence, either in the award or agreement or in a documented policy understood by the employer and employees, that the loading compensates for being unable to work overtime while on leave. Without that evidence, super is paid on it. The ATO’s own example shows one employer reaching different answers for two groups: loading for day workers (linked to lost overtime) excluded, loading for shiftworkers (linked to lost shift allowances) included. If the evidence points to anything other than overtime and the loading was left out, there is a super guarantee shortfall and the new SG charge applies.
The ATO’s qualifying earnings list (Table 13) says unused leave paid on termination, “including annual leave, annual leave loading and long service leave”, is not qualifying earnings, “regardless of the reason for termination or treatment for tax purposes.” Super is due on loading paid with leave taken or cashed out during employment, but not on the final payout of unused leave.
Our super due dates page sets out the payday deadline and what happens when a contribution is late.
Is leave loading paid on termination?
Yes, on any unused annual leave, if the employee would have received leave loading when taking that leave during employment. The Fair Work Ombudsman’s final pay page states that the payout “must be the same as the amount that would have been paid if annual leave was taken during employment”, and that annual leave loading “is paid out on termination even when an award, enterprise agreement or employment contract says that it’s not.”
That last point catches employers out. Some older award clauses still say loading is not payable on termination. Section 90(2) of the Fair Work Act overrides them. The Fair Work example is a mechanic under the Vehicle Award whose final pay left out the loading; the employer had to correct it.
The same rule applies to cashed-out annual leave. Fair Work’s page on cashing out annual leave says the payment “has to be the same as what the employee would have been paid if they took the leave”, so the loading is included when the award provides it.
How do you set up annual leave loading in Xero or MYOB?
Both Xero and MYOB let you create a leave loading pay item and attach it to each employee’s annual leave, either as a percentage of the leave hours or as a manual amount. Neither product decides which award rule applies. If an award requires the penalty-rate comparison, someone has to work out which amount is higher for each period of leave, or use a rostering and award interpretation tool that feeds the pay run. The setup choices to check:
- the loading pay item is mapped to the right STP Phase 2 category (paid leave type O, or overtime in the narrow lost-overtime case)
- super is set to calculate on the loading unless you hold the written evidence described above
- the loading is calculated on the base the award specifies: minimum rate, actual rate, or ordinary-time earnings
- leave balances paid out on termination pick up the loading automatically
Our Xero vs MYOB payroll comparison covers how each product handles awards, STP and Payday Super.
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Frequently asked questions
What is leave loading?
Leave loading is an extra payment on top of base pay when an employee takes annual leave, usually 17.5% of the base pay for the leave. It comes from the employee’s modern award, enterprise agreement or contract, not the National Employment Standards. Under many awards the employee gets the higher of 17.5% or the penalty rates or shift loading they would have earned, so the leave does not cost them the weekend or shift pay they normally receive.
How to calculate leave loading?
Multiply the base hourly rate by the ordinary hours of leave taken to get the leave pay, then multiply that by 17.5%. For example, 2 weeks of leave at 38 hours and $30.00 an hour is $2,280.00 of leave pay and $399.00 of leave loading. If the award compares the loading with penalty rates or shift loading, also work out those amounts for the same hours and pay whichever is higher.
Is leave loading paid on termination?
Yes. Unused annual leave paid out when employment ends must include leave loading if the employee would have received it when taking the leave. The Fair Work Ombudsman states this applies even where an award, enterprise agreement or contract says loading is not paid on termination, because section 90(2) of the Fair Work Act 2009 requires the payout to match what the employee would have received on leave.
Is super paid on leave loading?
Generally yes. The ATO includes annual leave loading in qualifying earnings, so the 12% super guarantee applies, unless the employer holds written evidence that the loading only compensates for the lost opportunity to work overtime while on leave. That evidence must be in the award or agreement, or in a documented policy. Without it, leaving the loading out of super creates a shortfall. Loading in the final payout of unused leave on termination is not qualifying earnings.
Do casual employees get leave loading?
No. Casual employees do not accrue paid annual leave, so there is no annual leave loading to pay. Their casual loading, commonly 25%, is paid instead of entitlements such as paid annual and personal leave. The General Retail, Hospitality and Fast Food awards each state that their annual leave clause does not apply to casual employees.
Is leave loading taxed?
Yes. When leave loading is paid with the leave in a normal pay, it is added to that pay’s earnings and tax is withheld from the total. When it is paid as a separate lump sum during employment, the ATO’s Schedule 5 applies. On termination, Schedule 7 applies: marginal rates for leave accrued after 17 August 1993 on a normal termination, and 32% for genuine redundancy, invalidity or early retirement.
This article is general information about Australian payroll and reporting obligations, current as at 5 October 2026. It is not tax, financial, legal or workplace relations advice. FreeMyCloud is not a registered tax agent and does not prepare or lodge tax returns. Rates, thresholds, award clauses and dates change. Confirm your own position with your registered tax or BAS agent, or the Fair Work Ombudsman on 13 13 94.
