​Are allowances included in annual leave pay?

​Are allowances included in annual leave pay?

By Paul Munro on 2 August 2018 Are work-related allowances included in an employee's annual leave pay?

This question was recently sent to our Ask an Expert service.

Q Our company has received many requests to take annual leave over the Christmas-New Year holiday period. One of the employees is in charge of a team on our production line and is paid a leading hand allowance. This allowance is considered when calculating other entitlements such as superannuation guarantee and penalty rates are calculated. The company has not previously included the allowance when the employee has taken annual leave.

Is this an error by the company or is there a different provision that applies to paid annual leave? The employee is employed under the Manufacturing and Associated Industries and Occupations Award 2010.

A Whether a work-related allowance is included in an employee’s annual leave pay will depend on the applicable modern award or enterprise agreement, otherwise the conditions under the National Employment Standards will apply.

Terms of award or agreement


In this case, clause 41.4(b) of the Manufacturing and Associated Industries and Occupations Award 2010 provides that payment for a period of annual leave must be worked out on the basis of what the employee would have been paid under the award for working ordinary hours during the period of the leave, including allowances (other than reimbursement allowances), penalties and loadings etc. This means the leading hand allowance is included in the employee’s ordinary pay when taking annual leave. Similar terms are also contained in the Food, Beverage and Tobacco Manufacturing Award 2010.

Fair Work Act


Under the Fair Work Act (s90(1)), an employee is to be paid at his/her ‘base rate of pay’ for a period of annual leave. This term is defined in section 16 of the Act to mean an employee’s pay for his/her ordinary working hours but excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates or any other separately identifiable amounts. This provision would apply in the absence of a more beneficial provision in the applicable modern award or enterprise agreement.

The bottom line: Allowances are not usually payable during a period of annual leave unless otherwise provided by the applicable modern award or enterprise agreement.
 

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