The question of leave loading has come up a couple of times this week, namely ‘why am I not being paid leave loading?’.
In most cases staff working in the home providing domestic support such as nannies, cleaners, housekeepers etc (except in WA) are covered by the Miscellaneous Award 2020 (Award), which includes a provision for leave loading.
Leave loading is an additional payment on top of an employee’s base pay during periods of annual leave. Typically, it’s 17.5% of the employee’s gross pay. It was originally introduced to compensate employees for not having the opportunity to earn overtime or other allowances while on leave.
Whether leave loading applies will depend on the terms of the employment contract.
An employer can offset award entitlements like leave loading if they pay an above-award rate. This needs to be done in writing with the agreement of the employee and must pass the ‘better off overall test’. Which is exactly as it sounds, you can pay outside of the Award, so not pay loadings or penalties as long as your employee is better off overall.
And you need to clearly state it in writing, that the above-award rate absorbs specific award entitlements, such as:
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- Leave loading (17.5%)
- Overtime
- Weekend penalties
- Allowances
What you shouldn’t do is just ignore leave loading out of the contract if the employee is award-covered, even if they are paid at a higher rate.
There are advantages to paying Leave Loading
- Legal Compliance
If you are paying your employee in line with the Award, or close to the minimum rate, then leave loading and the other penalties outlined within the Award are required.
By paying leave loading, you can be confident you are paying your employee correctly, without having to review the better off overall test in line with the annual wage increase (July 1 each year) and protect yourself from retrospective claims.
- Improved Employee Morale & Retention
Paying leave loading could make you a popular employer of choice in a tight labour market and help with retention of staff.
Staff love getting paid leave loading.
