Annual Leave Loading & Cashing Out — Hospitality & Restaurant Awards

In Simple TermsWhen a permanent employee takes a week of annual leave, you pay them their normal base rate for the week plus an extra 17.5% (or the applicable penalty rate if they’re an eligible shiftworker who would normally earn more). The same loading applies if you pay out unused leave on termination. Casuals don’t get any of this — their leave entitlement was built into the 25% casual loading every payslip.

Annual Leave Loading Formula

Annual leave pay = (Base rate × hours of leave) + 17.5% loading
(or applicable shiftworker penalties if higher)

For a part-time employee on a $25/hr base rate taking a 1-week (38-hour) annual leave block: $25 × 38 = $950 base + ($950 × 17.5%) = $1,116.25 total. The same formula applies whether the leave is taken during employment or paid out on termination. For eligible shiftworkers regularly rostered on penalty-attracting days, the “better of” rule (covered below) substitutes the higher penalty calculation in place of the 17.5% loading.

The 17.5% Leave Loading — How It Works

Annual leave is provided under the National Employment Standards (NES), specifically section 87 of the Fair Work Act 2009 (Cth). Full-time employees accrue 4 weeks (152 hours) of paid annual leave per year of service; shiftworkers accrue 5 weeks. Part-time employees accrue annual leave on a pro-rata basis based on their ordinary hours.

The 17.5% loading is an Award entitlement — it’s not in the NES itself. Both modern hospitality awards include the loading:

The loading is calculated on the employee’s ordinary base rate of pay for the leave period — not on penalty rates, overtime, or allowances. A part-time employee earning $25/hr who takes a 1-week (38-hour) annual leave block:

• Base leave pay: 38 × $25 = $950.00
• Leave loading: $950 × 17.5% = $166.25
• Total: $1,116.25

Loading vs Penalty Rates — The Better-Of Rule for Shiftworkers

Both Awards include a specific provision for shiftworkers regularly rostered to work weekends, public holidays, or evening/night shifts that would attract penalty rates. The general principle (subject to the precise wording of each Award’s leave clause) is that the employee receives the greater of:

1. The base rate plus the 17.5% loading; or
2. The amount the employee would have received for working their normal roster (including penalty rates), without the loading

The intent: a shiftworker whose normal rostered week is mostly weekend/evening shifts would lose money taking annual leave at base + 17.5% if their normal earnings are higher than that. The Award’s “better of” rule prevents that disadvantage.

For most non-shiftwork hospitality employees, the simple base + 17.5% calculation applies. Check the precise leave loading clause in your applicable Award (clause 30 of MA000009 and clause 25 of MA000119) for the specific eligibility criteria for the higher rate.

Casuals Don’t Get Leave Loading — Here’s Why

Casual employees do not accrue paid annual leave under the NES (section 86 of the Fair Work Act). The 25% casual loading paid on the casual employee’s ordinary hourly rate (clause 11.1 in both Awards) is in lieu of paid leave entitlements, including the loading.

This is one of the structural trade-offs of casual employment:

• Permanent: lower hourly rate + 4 weeks paid annual leave + 17.5% loading on that leave
• Casual: 25% loading on every hour worked + no paid annual leave

If a casual converts to permanent employment under clause 11.6 of MA000119 or the equivalent in MA000009, leave entitlements (and the loading on them) start accruing from the conversion date. Pre-conversion casual loading already paid is not retrospectively recovered — the trade-off was completed each pay period.

Cashing Out Annual Leave in Australia — The Rules

Cashing out annual leave means receiving payment for accrued leave instead of taking it as time off. Under section 93 of the Fair Work Act and the corresponding Award provisions (Schedule G of MA000009 and Schedule H of MA000119), strict conditions apply.

The Three Mandatory Conditions

1. Written agreement — each cashing-out instance requires a separate written agreement signed by both the employee and the employer. A standing agreement covering future cash-outs is not permitted
2. Minimum 4-week residual balance — the employee must retain at least 4 weeks of accrued annual leave after the cash-out. An employee with 3 weeks accrued cannot cash out anything; an employee with 6 weeks can cash out up to 2 weeks
3. Same payment as if leave was taken — the cash-out must equal what the employee would have received if they had actually taken the leave, including the 17.5% loading

Schedule G/H Agreement Requirements

The written cashing-out agreement must specify:

• The amount of leave being cashed out
• The amount of money being paid for the cash-out
• The date the payment is to be made
• The signatures of both parties

The employer must keep the agreement as a time and wages record under regulation 3.34 of the Fair Work Regulations 2009. A casual conversation, an email exchange without explicit agreement on amounts, or a payment processed without a signed document does not satisfy the cashing-out requirements.

Worked example: A part-time employee with 7 weeks accrued annual leave at a $30/hr base rate (152 hours = 4 weeks at the casual’s ordinary hours) wants to cash out 2 weeks before Christmas.

• Eligibility: 7 weeks − 2 weeks = 5 weeks residual (above the 4-week minimum) — eligible
• Cash payment for 2 weeks: 76 hours × $30 × 1.175 = $2,679.00
• Written Schedule H agreement signed by both parties before payment

Annual Leave Payout on Termination in Australia

Under section 90 of the Fair Work Act, when employment ends, the employer must pay the employee for any accrued but untaken annual leave at the rate the employee would have received had the leave been taken. Under both MA000009 and MA000119, this calculation typically includes the 17.5% loading on the base rate — the loading applies because it would have applied if the leave had been taken during employment.

The standard calculation:

1. Determine accrued annual leave hours as at the termination date
2. Multiply by the employee’s base rate of pay (per s90)
3. Add the 17.5% loading on that amount (or the applicable shiftworker penalty equivalent, whichever is higher under the Award)

Example: A full-time Level 4 cook on $28.12/hr terminates with 6 weeks accrued annual leave (228 hours).

• Base leave pay: 228 × $28.12 = $6,411.36
• Leave loading: $6,411.36 × 17.5% = $1,121.99
• Total termination leave payout: $7,533.35

The leave loading on termination payments is sometimes overlooked — particularly where payroll systems calculate the base accrued amount but require manual loading addition. This is a common source of small but recurring underpayment claims after employees leave. See the back-pay calculation guide for remediation methodology if you find historical errors.

Leave Loading and Tax Treatment

Annual leave loading is generally taxable as ordinary income through PAYG withholding. Two ATO concessions can apply:

• Genuine pre-1993 employees: A specific concession exists for leave loading paid to employees with pre-1993 service in narrow circumstances. Most modern hospitality employees do not qualify
• Lump sum leave on termination: Annual leave loading paid as part of a lump sum termination payment is taxed at the marginal rate, with PAYG withheld at the marginal rate. There is no automatic concessional rate for leave loading on termination unless specific transitional ETP rules apply (which is rare for ordinary leave loading)

Superannuation Guarantee on leave loading: Under ATO ruling SGR 2009/2, leave loading is generally treated as ordinary time earnings for superannuation purposes, unless it is demonstrably referable to a notional loss of opportunity to work overtime. The 12% Superannuation Guarantee applies from 1 July 2025. For most hospitality employees, the loading is OTE and super applies on it.

Excessive Leave Balances — Directing Leave

Both Awards allow the employer to direct a permanent employee to take annual leave in limited circumstances, primarily where the employee has accrued an excessive balance.

The general parameters under both MA000009 and MA000119:

• An employee has an “excessive” leave balance if they have accrued more than 8 weeks of paid annual leave (or 10 weeks for shiftworkers)
• The employer must first attempt to genuinely consult the employee about reducing the balance
• If consultation does not resolve the excess, the employer may give written notice directing the employee to take a period of leave
• The notice period must generally be at least 8 weeks (subject to the precise Award provision) and not more than 12 months in advance
• The direction must leave the employee with at least 6 weeks of accrued leave remaining

Annual close-down periods (such as a venue closing for 2 weeks over Christmas) can be the subject of a separate direction process under the Awards, with reasonable notice required.

Leave in Advance — Schedule G of MA000119

Both Awards also provide for “annual leave in advance” arrangements. An employee may take a period of paid annual leave before they have accrued an entitlement to that period, by written agreement with the employer.

Conditions for leave in advance:

• The agreement must be in writing
• The agreement must state the amount of leave being taken in advance and the date the leave will commence
• If employment ends before the employee has accrued the leave taken in advance, the employer may deduct from the final pay the amount equal to the un-accrued leave taken

The Award’s leave-in-advance provision (Schedule G of MA000119) provides an Award-authorised basis for the deduction (subject to section 324 of the Fair Work Act). Without the written agreement, an employer relying on this Award pathway cannot deduct un-accrued leave from final pay — though other authorised deduction pathways under s324 (such as written authorisation by the employee at the time of the deduction) may be available depending on the circumstances.

Common Leave Loading and Cash-Out Mistakes

• Forgetting to apply the 17.5% loading on termination payouts — the loading applies whether leave is taken or paid out. Termination calculations frequently miss it
• Cashing out without a written agreement — a verbal or implied cash-out is not authorised. The Schedule G/H agreement is mandatory, and each instance requires a fresh agreement
• Cashing out below the 4-week residual — the 4-week minimum balance is absolute. Even with employee consent, an arrangement that leaves the employee with less than 4 weeks accrued is not authorised
• Paying the cash-out at base rate without the loading — the cash-out must equal what the employee would have received had they taken the leave, including the 17.5% loading
• Trying to apply leave loading to casuals — casuals receive the 25% loading in lieu of paid leave; they don’t accrue annual leave and don’t get the loading on it
• Stacking penalty rates and the 17.5% loading — the loading applies on the base rate, not on penalty-loaded rates. The shiftworker “better of” rule is an alternative calculation, not an additional one
• Skipping the SGC top-up on leave loading paid as back-pay — if leave loading was missed historically and is being remediated, the 12% Super Guarantee on the back-pay component is also owed
• Directing excessive leave without consultation — the Award requires genuine consultation before the direction. Skipping consultation creates dispute exposure
• Deducting un-accrued leave on termination without a written advance agreement — without the Schedule G written agreement, the deduction is unlawful under section 324

Related Compliance Guides

Frequently Asked Questions

Leave loading is small per pay period but adds up across a workforce. Cashing-out arrangements done without the right paperwork create disproportionate risk. Get the documentation right.