How it works
Annual leave loading is an extra payment that may be paid to an employee on top of their base rate during periods of annual leave.
As an employer, you work out super guarantee payments for your employees based on their qualifying earnings. Qualifying earnings includes annual leave pay but not overtime.
Generally, you include annual leave loading in qualifying earnings because it's related to annual leave. However, you don't include annual leave loading in qualifying earnings if you can show that it's paid to compensate employees for being unable to work overtime while on leave.
If this is your situation, this information explains the evidence you will need.
Evidence you will need
To omit annual leave loading from your employees' qualifying earnings, you need written evidence showing that the leave loading is linked to a lost opportunity to work overtime.
This evidence can be either:
- the relevant award or agreement
- a documented policy, understood by you and your employees, that states the reason for the leave loading entitlement.
If you don't have written evidence, you need to either:
- obtain it as soon as possible
- start including annual leave loading in your employees' qualifying earnings when working out their super guarantee payments.
Example: documenting the reason for annual leave loading
QWERTY Co has a mix of day workers and shift workers, who are all covered by a modern award.
For day workers, the award includes an entitlement to annual leave loading and paid overtime. However, the award doesn't clearly link overtime and annual leave loading.
For shift workers, the award has a different annual leave loading entitlement and no paid overtime. The award indicates that this annual leave loading compensates shift workers for the lost opportunity to earn shift allowances while on leave.
QWERTY Co believes the day workers are paid annual leave loading to compensate for the lost opportunity to work overtime while on leave. This is based on advice the company has received about the historical reasons for the annual leave loading.
QWERTY Co prepares a policy document that clarifies the reason for annual leave loading.
QWERTY Co regularly deals with a union representing its workers. The company provides a copy of the policy document to the union to ensure it reflects their understanding of the reason for annual leave loading.
When working out super guarantee for its workers, QWERTY Co self-assesses the annual leave loading as:
- excluded from qualifying earnings for day workers
- included in qualifying earnings for shift workers.
Annual leave loading for previous periods
We understand that some employers have been unsure how to correctly treat annual leave loading. Also, you may not have evidence that identifies the purpose of annual leave loading paid in previous periods.
We won't review how you've treated annual leave loading in previous periods if both of the following apply:
- you self-assessed that annual leave loading was not qualifying earnings because it was for a loss of opportunity to work overtime
- there is no evidence that the annual leave loading was for something other than overtime.
However, if there is evidence that the annual leave loading was for something other than overtime, then the loading should have been included in qualifying earnings. If you omit the loading from your calculation and payment of super guarantee, you have a super guarantee shortfall and may be liable for the super guarantee charge.
For more information see the new super guarantee charge.