Holiday pay calculations in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Annual leave in Australia is paid at the employee's base rate of pay (or ordinary time earnings) for the hours they would have worked — plus any applicable leave loading of 17.5%, where it applies.
What counts as "holiday pay"
In Australia, "holiday pay" generally means payment for annual leave taken under the National Employment Standards (NES). Full-time employees are entitled to four weeks of paid annual leave per year, accruing progressively as they work. Part-time employees accrue leave on a pro-rata basis.
When an employee takes annual leave, you pay them what they would have earned had they been at work — their ordinary hourly rate multiplied by the hours of leave taken. Overtime, allowances and irregular loadings are generally excluded from this base calculation, though awards and enterprise agreements may specify otherwise.
Leave loading: does it apply?
Many awards and some enterprise agreements include 17.5% annual leave loading on top of the base rate. This loading exists as a historical recognition that employees lose the opportunity to earn overtime or shift penalties while on leave.
Whether it applies depends on the instrument covering your employee:
- If their modern award includes leave loading, you must pay it.
- If they are covered by an enterprise agreement that provides something equivalent or better, that agreement governs.
- If the employee is award-free (a common-law contract only), it depends on whether their contract specifies it.
Check the relevant award on the Fair Work Commission website. Do not assume loading applies universally — and equally, do not assume it does not.
How to calculate the payment
For a full-time employee on a consistent salary, the calculation is straightforward. Divide their annual salary by 52 to get a weekly rate, then pay that amount for each week of leave. If leave loading applies, multiply the weekly rate by 1.175.
For hourly employees, multiply the hourly rate by the number of leave hours taken. Again, apply 17.5% loading if the award requires it.
One thing to keep in mind: you compare the loaded rate against the employee's ordinary rate plus any higher duty or over-agreement payments, and pay whichever is higher. This is the "better of" test some awards specify.
Example (simplified):
An employee earns $30.00 per hour and takes one week of leave (38 hours). Their base leave pay is $1,140.00. If 17.5% loading applies, the loaded rate is $1,339.50. If the employee's ordinary rate already exceeds the loaded amount (for instance, because of consistent shift penalties), they may be entitled to the higher ordinary rate instead — check the specific award clause.
PAYG withholding and super on leave
Annual leave payments are treated as ordinary income and subject to PAYG withholding in the normal way. You withhold tax based on the employee's tax file declaration and applicable withholding tables.
Superannuation is payable on annual leave. The Superannuation Guarantee — currently 12% of ordinary time earnings from 2026 — applies to leave pay, because annual leave forms part of ordinary time earnings. Do not omit super when processing leave.
If an employee has a HECS/HELP debt, their study loan repayment obligations continue through payroll on leave payments just as they would on regular wages.
Every leave payment must be reported through Single Touch Payroll (STP) at the pay event, not deferred to end of year. If you are using payroll software, ensure the leave type is correctly mapped so the STP report captures it accurately. Year-end finalisation is due by 14 July.
Leave paid out on termination
When employment ends, any accrued but unused annual leave must be paid out — regardless of the reason for termination. This payout is calculated at the same base rate the employee would have received had they taken the leave while employed. Leave loading may also apply to the payout if it applied to taken leave under the relevant award or agreement.
This payout is not treated the same as normal income for tax purposes. The ATO has specific withholding rates for leave paid out on termination, and your payroll software should apply the correct withholding code. Getting this wrong is a common compliance error worth double-checking.
For businesses managing employees across multiple jurisdictions, the variation in award entitlements and leave loading rules adds a layer of complexity — how Mellow runs payroll across six countries on one platform covers how that works in practice.
Common mistakes to avoid
- Paying leave at the wrong rate — using a blended or average rate rather than the ordinary rate
- Forgetting to apply or exclude leave loading correctly per the applicable award
- Omitting super on leave payments
- Failing to report leave in STP at the time of the pay event
- Miscalculating termination leave payouts, particularly the applicable tax withholding treatment
The rules are consistent once you know the award and employment type — the discipline is in checking the source document rather than assuming a one-size approach.
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