How to Calculate and Record Leave Loading for Plumbing Employees

The Basics of Annual Leave Loading

Leave loading is an additional payment employees receive when they go on annual leave to compensate workers for the extra pay lost when taking leave, such as overtime pay or weekend penalty rates. For most plumbing businesses in Australia, this means paying an additional payment of 17.5% of the employee’s base rate when they take paid annual leave.

The reason this matters for plumbing businesses is simple: many plumbers work overtime, weekend jobs, or emergency call-outs that earn penalty rates. When they take holidays, they miss these opportunities to earn that extra payment. Annual leave loading helps balance this out by giving them a bit more during their time off.

Who Gets Entitled to Leave Loading

Not every employee automatically gets entitled to annual leave loading. Your obligations depend on what modern award covers your employees, any enterprise agreement you have, or what’s written in their employment contract. For most plumbing businesses, employees covered by the Plumbing and Fire Sprinklers Award receive 17.5% leave loading on their paid annual leave.

The key thing to remember is that annual leave loading isn’t automatic across all industries – it’s specific to certain modern awards and enterprise agreements. If your plumbing employees aren’t covered by a modern award that includes leave loading, and it’s not in their employment contracts, you may not need to pay it. However, the vast majority of plumbing businesses do need to provide this entitlement under the applicable modern award.

Determining Eligibility Under the Plumbing Award

Working out who gets leave loading in your plumbing business starts with understanding which employees fall under the relevant modern award and what their specific entitlements are.

Coverage Under the Plumbing and Fire Sprinklers Award

The Plumbing and Fire Sprinklers Award covers most plumbing businesses and clearly states that eligible employees receive 17.5% annual leave loading on top of their minimum weekly rate. This includes qualified plumbers, apprentices at certain levels, and other support workers in the plumbing and mechanical services industry.

Checking if your employees are covered starts with looking at their job classifications. Tradesperson levels, workers at different experience levels, and even some apprentices are entitled to leave loading under this applicable modern award. The award wage sheets show the minimum hourly rate and allowances, but leave loading is calculated separately when annual leave is taken.

Different Employment Types and Their Entitlements

For daily hire employees – which is common in plumbing – the same annual leave loading rate applies. Whether your staff are employed on a weekly, daily, or hourly basis, the calculation method stays the same. The loading is always calculated as a percentage of their rate of pay, not including penalty rates or allowances.

Casual plumbers receive a 25% casual loading instead of annual leave entitlements, so they don’t get separate annual leave loading. The casual loading is meant to compensate for all the benefits they miss out on, including paid annual leave and loading. Part time employees are entitled to paid annual leave on a pro-rata basis and get the same leave loading percentage as full time employees.

If you’re unsure whether your employees fall under this modern award, the Fair Work Ombudsman website has tools to help you check. Getting this right from the start saves you from potential underpayment issues later.

Step-by-Step Leave Loading Calculations

Once you know your employees are entitled to leave loading, the actual calculations are pretty straightforward. Here’s how to get it right every time.

Basic Calculation Method

The standard method for calculating leave loading is straightforward. Take the employee’s minimum weekly pay and multiply by 17.5%. This gives you the loading amount to add to their regular leave pay.

The key is always using the employee’s current rate of pay, not what they earned when they first accrued the annual leave. If they’ve had pay rises since starting, use their current rate for both the base leave pay and the loading calculation. This applies whether they’re taking paid annual leave during employment or receiving unused annual leave when employment ends.

Practical Examples with Real Plumbing Rates

Let’s work through some real examples using typical plumbing industry rates:

Full time employee qualified plumber: Your plumber earns $1,237 per week (based on current award rates). When they take one week of annual leave, their leave loading is $1,237 × 17.5% = $216. Their total pay for that week of leave becomes $1,237 + $216 = $1,453.

Part time employees working 20 hours: They earn $651 per week at their ordinary hours rate. Leave loading = $651 × 17.5% = $114. Total leave pay = $651 + $114 = $765.

Calculating Multiple Weeks and Pro-Rata Entitlements

If your employee takes four weeks paid annual leave, calculate the base pay for four weeks first, then apply the 17.5% loading to the total. Four weeks at $1,237 = $4,948. Leave loading = $4,948 × 17.5% = $866. Total payout = $5,814.

Pro-rata calculations work the same way for part time employees. If someone’s been employed for six months, they’ve accrued annual leave for two weeks. Calculate their current weekly pay rate, multiply by two weeks, then add 17.5% loading.

Recording Leave Loading in Your Books

Getting your bookkeeping right for leave loading protects you from compliance issues and makes managing your cash flow much easier.

Setting Up Your Chart of Accounts

Setting up your chart of accounts properly makes recording leave loading much easier. You’ll need separate accounts for leave expenses and leave provisions (liabilities). Most payroll software like Xero or MYOB can handle this automatically once set up correctly.

Create these account types:

• Leave Loading Expense (expense account)

• Provision for Annual Leave (liability account)

• Annual Leave Loading Provision (liability account if you want to track loading separately)

Recording Leave Accruals During Employment

Recording the accrual happens as your direct employee’s work. Each pay period, you accrue both the base annual leave and the leave loading. The journal entry debits your leave expenses and credits your provision accounts. This ensures your balance sheet always shows the correct liability for what you owe employees.

Most modern payroll systems handle these calculations and journal entries automatically. The key is making sure your software is set up correctly with the right pay items and account mappings from the start.

Processing Leave Payments and Reversals

When paid annual leave is taken, you reverse the provision and record the actual payment. The employee receives their regular pay plus loading, tax is withheld on the full amount, and superannuation is calculated on both the base leave pay and loading in most cases.

Your plumber takes one week of leave earning $1,453 total ($1,237 base + $216 loading). You’d debit the provision accounts for $1,453, credit cash for the net payment after tax, and credit PAYG withholding for the tax amount.

Superannuation on Leave Loading

This is where many plumbing business owners get confused, and it’s an area where the ATO has been quite clear about their expectations.

When You Need to Pay Super on Leave Loading

In most cases, you do need to pay superannuation on leave loading because it’s considered ordinary time earnings. The rule is simple: if the leave loading isn’t specifically and clearly linked to compensating for lost overtime opportunities, then it’s considered ordinary time earnings and attracts superannuation at the standard rate (currently 11%).

The reality for most plumbing businesses is that the Plumbing Award doesn’t specifically link leave loading to lost overtime compensation. It’s generally treated as a standard entitlement, which means super applies to the full amount – both base leave pay and loading.

Exceptions and Documentation Requirements

You don’t pay super on leave loading only if your modern award, enterprise agreement, or employment contract explicitly states that the leave loading is paid to compensate employees for being unable to work overtime while on leave. Even then, you need written evidence to prove this with proper documentation.

Calculating Super on Total Leave Payments

Using our earlier example of $5,814 total leave pay (including loading), the superannuation would be $5,814 × 11% = $639. This needs to be paid to your employee’s super fund by the quarterly due dates.

Getting it wrong has consequences. The ATO takes superannuation compliance seriously, and with Single Touch Payroll reporting, they can easily spot discrepancies. It’s better to err on the side of caution and pay super on leave loading unless you’re absolutely certain your documentation supports an exemption.

Single Touch Payroll and Leave Loading

Your leave loading payments need to be reported correctly through Single Touch Payroll, just like all your other payroll information.

STP Reporting Requirements

Reporting requirements under Single Touch Payroll mean you need to include leave loading in your regular payroll reporting to the ATO. This happens automatically when you process payroll through STP-enabled software, but you need to ensure your system is categorising leave loading correctly.

Setting up STP reporting for leave loading involves making sure your payroll software has the correct ATO reporting categories assigned. Leave loading is typically reported as part of gross wages, not as a separate category, unless it falls into specific circumstances.

Year-End Compliance and Record Keeping

Year-end finalisation includes all leave loading paid during the financial year on both paid annual leave taken and unused annual leave paid on termination. Your employees will see this on their income statements through myGov. Make sure all leave loading payments are processed through your STP software before lodging your finalisation event.

Keeping good records remains crucial even with automated reporting. The ATO can still audit your records, and you need to be able to justify all leave loading payments and superannuation calculations if questioned. Most importantly, ensure your payroll system correctly handles both annual leave and annual leave loading for continuing employees and final payments when employment ends.

Common Mistakes and How to Avoid Them

Learning from other plumbing business owners’ mistakes can save you time, money, and compliance headaches.

Award Coverage and Employee Classification Errors

Many plumbing business owners assume all their direct employees get leave loading or assume none do. Check each employee’s modern award coverage and employment contract. Apprentices, casual employees, and award-free employees may have different entitlements.

Always calculate leave loading on the employee’s current minimum weekly rate or minimum hourly rate, not including weekend penalties, shift loading, or overtime rates. Some business owners accidentally include weekend penalty rates in their calculation base, leading to overpayments.

Superannuation and Record Keeping Issues

This is probably the most expensive mistake. Unless you have clear documentation that leave loading compensates for lost overtime, you need to pay super on it as ordinary time earnings. Set up your payroll to automatically include leave loading in super calculations.

With STP reporting and potential ATO audits, you need proper records of all leave loading calculations and payments. Use payroll software that automatically tracks everything and generates the necessary reports.

Termination Payment Oversights

When employment ends, any unused annual leave must be paid out with leave loading included in the final payment. This often gets forgotten in the stress of handling departing staff. Build this into your termination checklist.

Set up your payroll software correctly from the start, use templates for calculations, and do regular spot checks against modern award rates. Consider working with an accountant who understands the plumbing industry to review your setup periodically.

Most importantly, when in doubt, get professional advice rather than guessing. The cost of getting it wrong through underpayments, super guarantee charge, or ATO penalties far exceeds the cost of proper advice.

Summary

Getting leave loading right for your plumbing employees doesn’t have to be complicated once you understand the basics. Most employees under the Plumbing and Fire Sprinklers Award get 17.5% paid annual leave loading on their annual leave pay, you need to pay superannuation on both the base leave and loading in most cases, and proper record-keeping through your payroll software will handle the compliance requirements. Whether you call it holiday loading or holiday leave loading, the calculation stays the same – it’s an additional payment on top of regular annual leave pay.

The key steps are checking your employees’ modern award coverage, setting up your payroll software with the correct calculations and account mappings, and ensuring you’re meeting all your superannuation and STP reporting obligations. When employees take paid annual leave, they get the same annual leave pay they’d normally receive plus 17.5% loading, and you need to withhold tax and pay super on the full amount. You pay leave loading whether it’s during employment or when unused annual leave gets paid out at termination.

Ready to get your leave loading sorted properly? Talk to us about setting up your payroll systems so you can focus on running your plumbing business instead of worrying about compliance.