Annual leave loading is a supplemental payment typically made to employees when they take paid time off for vacation. This additional amount, often calculated as 17.5% of the ordinary wage, is intended to compensate employees for lost opportunity to earn overtime or other penalty rates they might have received had they been working. For example, an employee earning $1,000 per week, when taking one week of annual leave, might receive an additional $175 leave loading, bringing their total leave pay for that week to $1,175.
The historical basis for this payment stems from a time when many workers were heavily reliant on overtime to supplement their base salaries. Providing this loading ensures employees aren’t financially disadvantaged when taking their entitled vacation. Consequently, this benefit contributes to employee well-being, promoting rest and relaxation without significant income reduction. This, in turn, can lead to increased morale and productivity upon their return to work.
