Leave Loading: Eligibility and Payroll Rules

Leave loading is extra pay on annual leave when an employee’s award, registered agreement or contract provides it. For client payroll, confirm the entitlement and pay base before applying a percentage, then classify the payment separately for tax and superannuation.

What Leave Loading Means

Annual leave loading adds money to an eligible employee’s annual-leave pay. The annual-leave balance records time off. The loading is the additional payment attached to that leave under the employee’s terms.

Holiday leave loading is another name for the same payment. Its historical purpose includes replacing earnings employees lose while away, such as overtime opportunities. That history alone establishes neither a superannuation exclusion nor a tax exemption.

A payslip showing annual leave without a loading line needs an entitlement check. It does not, by itself, prove an underpayment: loading may be absent, included through a valid salary arrangement or missing from payroll.

Check Who Receives Loading

Start with the employer’s workplace relations system, then identify the employee’s applicable award or registered agreement. Read any contractual promise alongside those minimum entitlements.

The National Employment Standards (NES) give eligible national-system employees paid annual leave. Loading comes from the relevant employment terms. An entitlement to annual leave alone does not make loading compulsory for every Australian employee.

State Coverage for Employer Clients

The Fair Work Commission’s coverage guide distinguishes national-system employment from state-system employment.

State	Usual national-system coverage	First exception to check
New South Wales	Private enterprise employees	State public sector and local government employees
Queensland	Private enterprise employees	State public sector and local government employees
Victoria	Most employees	Certain state public sector and law-enforcement employees
Western Australia	Employees of constitutional corporations, including qualifying trading companies	Sole traders and other employers outside the constitutional-corporation rules
South Australia	Private enterprise employees	State public sector and local government employees

A national-system employee does not acquire a different statewide loading percentage merely by working in NSW, Queensland or Victoria. The governing instrument sets the entitlement.

For WA clients, identify the actual employing entity, including the trustee where relevant. WA’s system-coverage guidance explains why sole traders and some partnerships or trust arrangements fall into the state system. Use its applicable state award and minimum conditions where that system applies.

Employment Type and Salary Arrangements

Full-time and part-time employees receive loading when their terms provide it. Apprentices need the same instrument check, using their applicable classification and pay provisions.

Casual loading compensates casual employees for specified entitlements they do not receive, including paid annual leave. It is separate from annual leave loading. Casual status does not create a second loading payment for an annual-leave entitlement the employee does not have.

A salary does not automatically remove an award entitlement. Where the client says loading is included, inspect the written arrangement and its calculation. For a Clerks Award annualised wage, retain the provisions covered, component calculations and required reconciliation records.

Find the Applicable Loading Rate

Find the percentage and pay base in the instrument that covers the employee. Also identify when loading becomes payable and whether a comparison with weekend or shift penalties changes the payment.

A 17.5% loading is common in awards, including the examples below. Where that rate applies, the employee receives an additional percentage of the pay base named in the clause. Other employees can have a different rate or no loading entitlement.

Clerks and SCHADS Award Checks

Award	Pay base and dayworker check	Shiftworker check
Clerks - Private Sector Award	Clause 32.3 uses the minimum hourly rate for ordinary hours. Compare the loading outcome with the applicable weekend-penalty outcome for day work.	Compare the 17.5% outcome with the shift and weekend penalties that would apply under the award.
Social, Community, Home Care and Disability Services Industry Award (SCHADS)	Clause 31.4 gives non-shiftworkers 17.5% of their ordinary rate, in addition to ordinary pay.	Pay the higher of the 17.5% loading or the weekend and shift penalties the employee would have received.

Read the Clerks Award or SCHADS Award for the client’s classification. Preserve the distinction between the Clerks minimum-rate reference and the SCHADS ordinary-rate wording. An above-award wage needs that distinction checked before payroll is approved.

In a fictional employer-client file, a permanent SCHADS dayworker takes approved annual leave. The reviewer confirms award coverage, ordinary pay and the 17.5% entitlement. A shiftworker in the same organisation needs the additional penalty comparison before the reviewer authorises payment.

Once those inputs are settled, use the annual leave calculator for the gross-payment arithmetic. Keep the chosen clause and any penalty comparison with the result.

Check Superannuation on Leave Loading

The employer’s superannuation contribution depends on the character of the leave-loading payment and the rules applying to its payroll period. The award entitlement and the employer’s contribution classification are separate decisions.

Ordinary time earnings (OTE) generally include leave loading paid with annual leave. The ATO’s leave-loading guidance requires written evidence to exclude loading as compensation for lost overtime opportunities.

That evidence can be the award or agreement, or a documented policy understood by the employer and employees. An unexplained payroll checkbox or a general statement about loading’s history is insufficient. Compensation for lost ordinary-hours shift penalties does not establish a lost-overtime exclusion.

Ordinary Time Earnings and Qualifying Earnings

Under Payday Super, qualifying earnings (QE) are the contribution base. QE include OTE and additional categories, including all employee commissions and relevant salary-sacrificed amounts. OTE remains a classification within that broader base.

When correcting an earlier period, use the rules applying to that period. For a Payday Super pay run, confirm both the contribution calculation and QE reporting. Do not carry an old OTE-only setup forward without checking the ATO’s qualifying-earnings payment table.

Record whether the loading accompanies leave taken, an in-service cash-out or a termination payout. Those payment types need separate classification. Preserve the lost-overtime evidence where that exclusion applies.

An SGC label in payroll software can mean superannuation guarantee contribution, the employer’s contribution to the employee’s fund. The superannuation guarantee charge is the separate liability for a contribution shortfall. Turning on a contribution setting does not lodge or pay that charge.

Withhold Tax From the Payment

Leave loading is taxable. The amount an employee is entitled to receive is the gross loading, while PAYG withholding is the tax deducted from the payment.

Use the payment type to select the withholding method. The ATO’s leave-payment withholding instructions distinguish loading paid with regular earnings from a separate lump sum.

• For loading paid pro rata as leave is taken, add it to earnings for the period and apply the relevant regular tax table.
• For a separate in-service lump sum, apply Schedule 5 for back payments, commissions, bonuses and similar payments.
• For loading attached to unused annual leave on termination, use the unused-leave termination instructions. Select the treatment using the termination reason and relevant accrual history.

For final pay, use the ATO’s unused annual-leave instructions. There is no single flat tax rate that applies to every leave-loading payment. A change in withholding does not change the employee’s gross entitlement.

Record Loading in Client Payroll

Carry the entitlement decision into payroll with an approved leave record and a reviewable explanation of the resulting pay. Keep the instrument and clause with the rate and pay-base decision.

1. Match the approved leave period and hours to the employee’s leave balance and assigned leave type.
2. Record the loading entitlement, any salary inclusion and the required penalty comparison.
3. Set the payroll item and employee eligibility to implement that decision.
4. Check the contribution classification and applicable QE reporting, retaining any lost-overtime evidence.
5. Review the draft payslip against the authorised gross payment and withholding method. Reconcile its liabilities through payroll accounting before approving the pay run.

The expected result is one supported loading payment for the relevant leave, with the correct tax and contribution treatment. The leave balance must reduce by the approved hours, and payroll reports must agree with the payslip.

Check Leave Loading in Xero

In Xero, confirm the employee’s eligibility and the loading rate attached to the annual-leave type against the file. The saved setting implements the employer’s entitlement decision.

Xero’s qualifying-earnings instructions direct you to the employee’s tax settings for loading. Review “Eligible for leave loading”, “Calculate superannuation on leave loading” and “Report as qualifying earnings” against the classification. The QE setting is available when both eligibility and super calculation are selected.

Xero’s cash-out procedure processes an in-service cash-out through a leave request. Distinguish that request from ordinary leave taken and a termination payout. Apply the ATO’s payment classification to the actual payment before saving the settings.

Correct a Draft Payslip Before Authorisation

Symptom	First check	Supported correction and review
Loading is missing	Employee eligibility, assigned leave type and documented salary inclusion	Correct the relevant setting where the file establishes entitlement. Refresh the draft payslip and compare the gross payment again.
Superannuation is unexpected	Payment type, lost-overtime evidence and contribution/QE settings	Correct the classification supported by the file. Recheck the contribution amount and reporting totals on a fresh draft.
Loading appears against the wrong leave category	Category assigned to the leave pay item	Correct the category and reset the draft payslip, as Xero instructs. Check the leave balance and loading again before authorisation.

Xero’s pay-run troubleshooting instructions explain the annual-leave category check and payslip reset. Review the rebuilt draft before posting. An already posted error needs the appropriate correction workflow and an assessment of any affected reporting or contributions.

Include Loading in Final Pay

For national-system employees, unused annual leave paid on termination must include the loading they would have received while taking that leave. Resignation does not remove that entitlement. Fair Work’s final-pay guidance applies this rule even where an award or contract says otherwise.

Keep the leave-loading component separate from other final-pay components. Unused annual leave paid on termination, including its loading, is excluded from OTE and does not attract super guarantee as qualifying earnings. Any additional contractual contribution promise needs its own check.

The Superannuation Guarantee (Administration) Act separates the OTE termination exclusion from QE’s broader definition. Taking leave before employment ends and cashing it out while still employed require their own treatment.

Retain the termination reason and effective date, unused leave hours and accrual history. Add the governing clause, applicable rate and the loading calculation to the reviewer’s record. Match the payout’s tax category to that evidence.

Use the redundancy pay calculator to assemble the wider gross final-pay schedule where relevant. Use the termination payment tax calculator after separating unused leave from the other payment components.

Keep Other Leave Types Separate

Annual leave loading does not automatically apply to long service leave or sick leave. Each leave type has its own payment rule, and an additional entitlement must come from the governing law or employment instrument.

For example, WA’s long-service-leave payment guidance uses ordinary pay under that Act. It includes casual loading for a casual employee. That is different from adding the employee’s annual-leave loading percentage.

Incorrect treatment copies the annual-leave loading rate onto a long-service-leave line because the employee receives it on holidays. Correct treatment records the applicable long-service-leave law or instrument and its pay definition, then applies any additional entitlement it actually provides.

For sick leave, use the applicable personal-leave rule and its pay base. If sickness changes an approved annual-leave period to personal leave, review the leave category and associated loading together. Keep the entitlement source beside each leave item so the next reviewer can trace the payslip to the right rule.