Absorption of award entitlements
In many instances, an employer pays an over-award payment to avoid the hassle of having to calculate various payments prescribed by the relevant award, e.g., annual leave loading, allowances, rostered overtime, etc. Compensating for an entitlement under an industrial instrument may not necessarily achieve the purpose the employer had originally intended. For example, annual leave loading is payable under a specific circumstance, i.e. in addition to an employee’s ordinary pay when taking annual leave.
Many employers have incorporated this entitlement into an employee’s total wage or salary, meaning it is no longer an ‘annual leave loading’ because it is now payable each week, regardless of an employee’s absence on paid annual leave. In the absence of a written contract of employment stating that the over-award payment compensates for it, an employer would be liable to pay annual leave loading when an employee takes annual leave. Employers in this situation may be exposed to a ‘double-dip’ by their employees.
Unless specific reference is made in an employee’s contract of employment, ordinary pay includes annual leave loading, the nature of the loading changes and, subsequently, could form part of the employee’s ordinary pay.
The bottom line: The method of calculating annual leave loading is determined by the terms of the relevant modern award.