Annual leave explained
Wentworth Advantage provides information about what you need to know about employees annual leave entitlements and annual leave loading.
The majority of Awards contain provisions that require employers to pay their employees a loading on top of their base earnings while they are on annual leave. In most cases, this loading is 17.5 per cent. This is consistent with the Health Professional and Support Services Award 2010, which applies to employers and their employees in a physiotherapy practice.
Historically, this loading was invented as a way of compensating employees for the fact they wouldn’t be able to work any overtime during a period of leave. While this is no longer its primary purpose, it has remained present in the vast majority of modern awards.
If you choose to pay your employees in line with the Award minimum, you will be obliged to pay the 17.5 per cent loading on top of the employee’s ordinary rate of pay for the entire period of annual leave.
However, you may choose to absorb this 17.5 per cent loading into an above award rate of payment. Clause 7.1 of the award explicitly states ‘Despite anything else in this award, an employer and an individual employee may agree to vary the application of the terms of this award relating to any of the following in order to meet the genuine needs of both the employee and the employer: (e) annual leave loading.’
The employee must be informed at the beginning of their employment that their rate of pay is inclusive of the annual leave loading as dictated by the relevant award. Furthermore, it must be made clear that the proposed arrangement leaves them better off overall compared to what they would have received without the agreement.
The Award states that the arrangement must:
- be confirmed in writing
- include the names of both parties to the agreement
- identify the term of the Award being varied
- demonstrate how the employee is better off overall
- confirm the date the agreement is to start.
Including the agreement as part of the individual’s contract of employment would be more than sufficient to satisfy these requirements because of all the elements listed for an ‘individual flexibility agreement’ are present in a contract in any case.
As with any variations made to the terms of an Award, it goes without saying that the employee must agree to the proposed changes without being subject to any pressure from their employer.
If it is genuinely to the employee’s benefit, it is unlikely to present any issues for the business. As absorbing annual leave loading is an overall monetary increase for the employee, it is very uncommon for employers to receive any complaints.
However, employers should always be open to discuss any queries or concerns employees might have regarding any terms of employment.
Wentworth Advantage operates the HR in Practice workplace relations advisory service for APA Business group members. If you have any questions about this article, contact the HR in Practice service on email@example.com. For more information on the benefits of joining the Business group, email firstname.lastname@example.org or call 1300 306 622.
Disclaimer: The material contained in this publication is general comment and is not intended as advice on any particular matter, nor should it be relied on as a substitute for legal or professional advice. Wentworth Advantage Pty Ltd expressly disclaim all and any liability to any persons whatsoever in respect of anything done or omitted to be done by any such person in reliance whether in whole or in part upon any of the contents of this publication.
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