There’s been a lot of confusion around how annual Leave Loading should be paid since the Fair Work Act (Cth) (the Act) was introduced in 2009. 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 leave loading?
Essentially, leave loading is a payment made on top of the employee’s base rate of pay for usual hours worked. Equivalent to 17.5 percent of a week’s wage, leave loading as we know it has been inherited from the 1970s Labour movement which applied in many industries where doing overtime was the norm. 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.
Payment upon termination
As employees work, they accumulate leave balance. An employee who is terminated must be paid out for both their accrued Annual Leave and annual leave loading if he/she is eligible for both entitlements. This means that the amount payable for any untaken annual leave must-include the 17.5% extra pay.
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. The cost of failing to pay wages and entitlements correctly is high, and the issue is taken very seriously by The Fair Work Ombudsman and The Fair Work Commission. As a fact, underpaid employees have the ability to seek repayments for up to six years after the termination of their employment.
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