Annual leave loading is to be paid on termination

With the introduction of the modern awards and National Employment Standards on 1 January 2010, there’s been some confusion with regard to whether annual leave loading is to be paid on accrued annual leave paid in lieu on termination. Annual leave loading is an award entitlement. It’s not an entitlement under the National Employment Standards (NES), which otherwise provides the entitlement for annual leave for employees. Therefore, only employees that are covered by an award (or enterprise agreement) are entitled to annual leave loading. However, the NES provides that on termination, employees must be paid for any accrued annual leave entitlements at the rate they would have received had they taken the annual leave during their employment.

The Fair Work Ombudsman’s office recently confirmed that – with regard to award employees - employers are required to pay the 17.5% annual leave loading on accrued annual leave both when leave is taken during employment and on accrued and untaken annual leave paid in lieu on separation of employment. The FWO considers that employees shouldn’t be disadvantaged in their payment by not receiving the loading on termination simply because they didn’t take the annual leave whilst employed.

The ACCI is opposed to this view as it believes that the FWO has made this decision notwithstanding that neither the NES nor the awards (with some exceptions) expressly state annual leave loading is to be paid with leave payments on termination. They say this postion wasn’t discussed by Parliament during the negotiation and passage of the Fair Work Act. Therefore, the ACCI has written to the Workplace Relations Minister asking him to clarify the intention of the Act.

KEY POINTS: Unless the position is clarified differently by Fair Work Australia or Parliament, the FWO will be enforcing that annual leave loading is to be paid on accrued annual leave entitlements paid in lieu on termination. Employers should abide by this remembering that only award employees are entitled to annual leave loading.