Most Australian employees on a modern award are owed an extra 17.5% on top of their ordinary pay every time they take annual leave. Yet annual leave loading on payslips across Australia is routinely missing, miscalculated, or buried inside a single "Annual Leave" figure that gives nobody a straight answer. For employers, that's a Fair Work compliance breach waiting to be audited. For employees, it's money quietly left on the table.
- Annual leave loading is a 17.5% top-up paid when you take annual leave — if your award requires it.
- Most employees under Fair Work modern awards qualify. Casual employees do not.
- It must appear as a separate line on the payslip — never bundled into base leave pay.
- Three employer mistakes that cause underpayment and compliance breaches.
What Is Annual Leave Loading?
Annual leave loading is an additional 17.5% paid on top of an employee's ordinary rate of pay during annual leave. The logic is simple: workers on leave forfeit the overtime and penalty rates they'd earn on a normal roster. Leave loading compensates for that gap — not fully, but enough that the award system considers the trade-off fair.
Here's what most employees don't know: leave loading is not a universal right. It applies under most Fair Work modern awards and many enterprise agreements — but not all. Employees whose terms are set by above-award packages or individual contracts that explicitly exclude it may have no entitlement whatsoever. The safest move, for employers and employees alike, is to check the specific award on fairwork.gov.au before every leave pay run. You can also cross-reference Fair Work payslip requirements to confirm what must appear alongside it.
Who Is Entitled and How Is It Calculated?
Full-time and part-time employees covered by a modern award that includes leave loading are entitled to it. The formula doesn't get simpler than this:
Worked example: James is a warehouse supervisor in Brisbane earning $1,200 per week in ordinary pay. When he takes one week of annual leave, his leave loading is $1,200 × 17.5% = $210. Total leave payment for the week: $1,410. One week off, no shortfall.
One important nuance — and awards are specific about this. The employee receives whichever is higher: the 17.5% leave loading, or their normal penalty and overtime rates for that period. Not both. If James normally earns enough overtime to push his weekly total above $1,410, that higher figure applies instead. Leave loading is a floor, not a bonus stacked on top of penalties.
Tax treatment is straightforward. Annual leave loading is ordinary income — added to gross pay and withheld at the employee's marginal PAYG rate, same as regular wages. No special rate, no separate treatment in 2025/26. For a full breakdown, see our PAYG withholding guide.
How Annual Leave Loading Appears on a Payslip
Under the Fair Work Act, every payment component must be itemised separately on a payslip. Annual leave loading cannot be folded into the base annual leave figure — it must stand alone, labelled clearly as "Annual Leave Loading" or "Leave Loading 17.5%", with the dollar amount displayed.
“"A single 'Annual Leave' line with no separate loading may look clean on the surface — but it's almost certainly not compliant."
If your payslip shows annual leave pay without a separate leave loading line, your employer may not be meeting their award obligations. Employees have the right to request a corrected payslip. For exactly what must appear on every payslip, read how to read an Australian payslip.
PayslipMate automatically calculates and itemises annual leave loading on every payslip — the correct figure, on its own line, every time.
Three Mistakes That Get Employers Into Trouble
Fair Work inspectors can audit payslip records going back seven years. A missing or miscalculated leave loading line is one of the most commonly cited payslip deficiencies in compliance reviews.
- Assuming leave loading applies — or doesn't — without checking. Awards differ. The Retail Award includes leave loading; some professional awards do not. Verify the specific award for every employee before processing leave payments.
- Applying leave loading to cashed-out annual leave. Many awards do not require leave loading when leave is cashed out rather than actually taken. Check the award's cash-out provisions carefully — adding loading where it's not owed is as problematic as omitting it where it is.
- Lumping leave loading into the base annual leave amount. Even if the dollar total is correct, failing to itemise it as a separate line breaches Fair Work payslip requirements. The total isn't the point — the itemisation is.
Casual employees are a separate matter entirely. They have no entitlement to paid annual leave, so leave loading simply doesn't apply. Their 25% casual loading already accounts for leave entitlements not accrued. For more on what casual workers are and aren't owed, see casual employee payslip requirements.
Confirm the applicable modern award at fairwork.gov.au before each leave payment. When loading applies: calculate it on ordinary pay only, show it as a separate payslip line, and tax it as ordinary income. Three steps. No grey areas.
Frequently Asked Questions
Is annual leave loading compulsory in Australia?
Only if your employee's modern award or enterprise agreement requires it. Not all awards include leave loading — verify the specific award before omitting it from a leave payment.
Is annual leave loading taxed differently on a payslip?
No. It's taxed as ordinary income under standard PAYG withholding rates. No separate rate applies in 2025/26 — it's added to gross pay and withheld at the employee's marginal rate.
Does annual leave loading apply to casual employees?
No. Casuals aren't entitled to paid annual leave, so leave loading doesn't apply. Their casual loading — typically 25% — already accounts for leave they don't accrue.
What if an employee's penalty rates are higher than 17.5% leave loading?
The employee receives whichever amount is greater: calculated penalty or overtime rate, or the 17.5% leave loading. You do not pay both. Most awards specify this comparison method explicitly.
Get the entitlement right, itemise it correctly, tax it properly. That's all it takes. If you'd rather not run the numbers manually each pay cycle, PayslipMate handles the calculation automatically — correct figure, correct line, every time.
Shawn Martinez, CPA
Senior Tax Accountant
Shawn Martinez is a Certified Public Accountant with over 12 years of experience in Australian taxation and payroll compliance. He specializes in PAYG withholding, superannuation regulations, and ATO compliance for small to medium businesses.
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