FLEXIBILITY IN SICK LEAVE
FLEXIBILITY IN ANNUAL LEAVE LOADINGS
the Centre for Labour Market Research
The University of Western Australia
Graduate School of Management
The University of Western Australia
Murdoch Business School
CLMR DISCUSSION PAPER SERIES 02/2
The authors would like to acknowledge the Commonwealth’s funding of this research, however,
the views expressed in the report do not necessarily reflect the views of the Commonwealth
the Centre for Labour Market Research, The University of Western Australia, Crawley WA 6009
Tel: (08) 9380 8672 Fax: (08) 9380 8671 email: email@example.com
The Centre wishes to acknowledge the support of The Western Australian Department of Training
This paper examines the origins and rationale for the introduction of annual leave
loadings in Australia and the prevalence of these in different jurisdictions. The paper
looks at the incidence of the annual leave loading entitlements in the awards of the
federal and Western Australian jurisdictions, as well as collective and individual
agreements and the Workplace Relations Act. The analysis of certified agreements
suggest that annual leave loadings have undergone little or no modification. The vast
majority of these agreements allow for the parent award from which they are derived to
prescribe the annual leave loading conditions. Certified agreements have not provided
a major instrument of flexibility to date. Australian Workplace Agreement, though not
numerous, provide for greater variability in annual leave loading than do awards or
Annual leave has been part of the industrial landscape in Australia for the best part of 70
years. Leave loadings have a much shorter history, with the first appearance in awards
being in 1970. Annual leave loading entitlements were originally intended to ensure that
employees were not financially disadvantaged during their annual vacation. That is,
they were intended to compensate employees for their inability to obtain overtime, other
penalties and allowances that contribute to their usual weekly pay. In many instances,
annual leave loadings have moved beyond this principle and now represent an
extraneous payment, something over and above normal weekly earnings.
This paper examines in detail the origins and rationale for the introduction of annual
leave loadings and the prevalence of these entitlements in different jurisdictions across
Australia. We examine the incidence of annual leave loadings entitlements in the
awards of the federal and Western Australian jurisdictions, as well as collective and
individual agreements under the Workplace Relations Act. We also explore the
incidence of recreational leave bonuses in a selection of other countries. The paper also
seeks to establish the extent and cost of annual leave loadings in Australia and explores
some options for making leave loadings more flexible. An analysis of certified
agreements suggests that annual leave loadings have been modified in only minor ways,
where they have been modified at all. Indeed, the vast majority of certified agreements
provide for the parent award from which they are derived to prescribe annual leave
conditions. To this end, certified agreements have, so far, ‘not provided a major
instrument for flexibility’. Though Australian Workplace Agreements are not numerous,
they do provide for greater variability in annual leave loadings than awards or collective
This paper contains a number of sections and is set out as follows. First, the incidence of
annual leave and annual leave loadings in Australia are examined. This is followed by
an examination of the development of the concept of annual leave loadings in the
tribunal system which has dominated industrial relations in Australia until recently. The
incidence and components of annual leave provisions in federal awards, certified
agreements, Australian Workplace Agreements and awards of the Western Australia
system are then examined. The international experience in relation to annual leave
provisions is outlined, followed by an analysis of the cost of annual leave loading and
who pays. In the final section we examine the concept of flexibility as it relates to
annual leave loadings.
Incidence of Annual Leave
Annual leave loadings may be defined as additional payments to employees during their
period of annual or recreational leave. The more common terminology in other parts of
the world is “leave bonuses”.
Since the loadings examined in this paper are attached to annual leave entitlements, the
incidence of annual leave provides one pointer as to the extent of such loadings.
Employees annual leave entitlements derive from two primary sources: legislation of
federal and state parliaments; and awards or agreements that codify such entitlements
for particular groups of employees.
The provision for annual leave has been part of industrial conditions in Australia for a
long time. There is evidence of annual leave forming a part of federal awards in some of
the first awards made by the former Commonwealth Conciliation and Arbitration Court.
The principle of one week’s annual leave was granted by this Court for federal award
purposes in 1936 (36 CAR 738). This was increased to two weeks in 1945 (43 CAR
406). This increase was influenced by legislation in New South Wales that granted two
weeks’ annual leave to all state-award employees. In 1958 the NSW legislature
increased annual leave for state-award employees to three weeks. This became the
standard for some industries under federal awards in 1960 (98 CAR 843) and became
generalised in 1963 (102 CAR 139). In 1970 the Conciliation and Arbitration
Commission (the successor to the Court) granted four weeks’ annual leave for the oil
industry but refused to make this a general standard (AILR Rep 465). Following
Commonwealth legislation providing for four weeks’ annual leave for Commonwealth
employees in 1975, the Commission declared four weeks as a general standard under
federal awards in 1960 (98 CAR 843).
Historically a large proportion of employees have been entitled to annual leave. The
proportion is still high at this time, though increased casual employment is reducing the
incidence of this entitlement.
The most recent ABS data in connection with annual leave entitlements relates to
August 1998. At that time 5.3 million employees were entitled to annual leave. This
represented 87.3 per cent of all full-time employees, 33 per cent of part-time employees
and 72.1 per cent of all employees (ABS 6310.0). The ABS survey’s data for part-time
employees did not distinguish between permanent and casual employment. As recorded
below, our own analysis of awards and agreements indicates that a very small
proportion of casual employees are entitled to annual leave or the accompanying
loadings. Casual employees are paid a “casual loading”. This loading compensates for
the non-entitlement to paid annual leave and annual leave loadings.
Though it is possible to document the development and incidence of annual leave
entitlements, determining the loadings attached to such leave is not a simple matter. The
ABS does not publish data of such loadings, though the ABS Average Weekly Earnings
series includes matters “such as retrospective pay, pay in advance, leave loadings and
severance payments” (ABS 6310.0). The Australian Bureau of Statistics does not
separately itemise leave loading data, as a result, determining the cost of annual leave
loadings from official data is not possible.
One attempt to establish the cost of annual leave loading was undertaken by the former
Australian Industries Development Association (AIDA).1 AIDA conducted surveys in
1981 and 1982 in an attempt to determine total labour costs, including annual leave
loadings. The surveys covered the 100 largest industrial and mining companies, and so
may not be representative of all companies. Direct costs (wages, overtime and shift
allowances) were calculated to be $7.79 per hour in 1981 and $8.85 per hour in 1982.
Indirect labour costs were estimated to be $3.14 and $3.89 per hour respectively.
Annual leave loadings in each year were $0.11 and $0.133 per hour respectively. This
represented 1.7 per cent of wages in each year. Annual leave loadings represented 1.4
per cent and 1.5 per cent respectively of direct wage costs in each year.
Unfortunately no other attempts to estimate the costs of annual leave loadings appear to
have been attempted since 1982. The Department of Employment, Workplace Relations
and Small Business (DEWRSB) has undertaken some analysis of certified agreements
to determine whether or not annual leave loadings are included in such agreements. The
DEWRSB results are included in a subsequent part of this paper. For present purposes
they are rather limited. The data were obtained from the Workplace Agreements
Database [WAD]. Whilst the WAD identifies agreements with annual leave loading, it
does not provide information relating to the quantum of such loadings. For this reason
we have undertaken an extensive examination of awards and agreements to determine
the incidence of annual leave loadings and to estimate the costs of such loadings.
The Development of Annual Leave Loadings
Annual leave loadings were first introduced in Australia in 1970. In that year the
Waterside Workers’ Federation made claims for an extra week’s annual leave. The
compromise agreed to by employers was the payment of an annual leave loading of 17.5
per cent (Interview, Commissioner Gregor, 15/11/00. See also 134 CAR).
In the Engineering Oil Industry Case of 1970 (134 CAR 159) unions sought to
incorporate the provisions of the waterside workers’ agreement into awards. They
sought, among other things, an extra week’s annual leave (from three weeks to four
weeks) and the “payment of 25 per cent loading on annual leave pay”. Employers had
offered the unions in dispute a “package” which, among other things, provided for the
introduction of a fourth week of annual leave while refusing the claim for annual leave
As many of the submissions in this and subsequent cases continue to be relevant in any
discussion of annual leave loadings, the submissions are detailed in this paper.
This Association subsequently merged with the Business Roundtable to form the Business Council of
In the Engineering Oil Case Mr Hawke, on behalf of the unions, claimed that a 25 per
cent loading was necessary so that “employees would not receive a lower rate when on
leave than their usual take-home pay”. It was argued that employees’ financial
commitments continued during their annual leave and that it would “be unjust to allow a
significant fall in income during that period”.
The Commission was also asked to consider the agreement which had been entered into
by employers and employees generally in New Zealand:
Payment for annual holidays shall be on the basis of the workers’ average
weekly taxable earnings for the year (or lesser period where applicable)
immediately preceding his annual holiday entitlements provided that the
holiday pay does not exceed the workers’ ordinary pay plus 30 per cent
and provided further that in no case shall the holiday pay be less than the
workers’ ordinary pay at the time of taking holiday (ibid).
The Full Bench held that the union claim “involved a significant departure from current
standards and we are not prepared on the material before us to go further than the
‘package deal’ (ibid). The Commission left the door open for further applications by
We realise that the question of additional payment when on annual leave is
developing into a significant question which the Commission may have to
resolve in some general way. We are therefore prepared to reserve leave on
this matter” (ibid, p.171).
Unions sought to introduce a general test case in 1971 in what is referred to as the
“Annual Leave Cases 1971” (144 CAR 170). The Full Bench hearing consolidated
some 15 applications – six under the Conciliation and Arbitration Act, and nine under
the Public Service Arbitration Act. In all, 15 unions representing manufacturing,
banking, insurance, postal services, food processing, communications, clerical workers
and postal services were represented. Relevant industry employer associations and
federal and state Public Service Boards opposed the claims. The Full Bench noted that
“The hearing was treated as a test case by all the parties and interveners and we propose
to treat it as a test case’ (ibid, p. 532).
Unions had put forward three claims:
• an increase in the award amount of weekly payment when on annual leave;
• a bonus of an extra week’s pay to employees on annual leave;
• an increase in the minimum standard of three weeks annual leave of one week to
The last matter is marginally relevant to this paper and will not be detailed, other than to
note that unions were not successful in their application.
There was a high degree of inter-relationship in the submissions presented by unions
over the first two matters, as there was in the Commission’s determination of these
matters. A major thrust for an increase in the amount of payment when on annual leave
revolved around the issue of inequity. The Commission noted:
It was pointed out that many, probably the majority, of employees during
their working year received more than their ordinary award rate each week
while they are at work. They are paid over awards, shift allowances, special
penalties, overtime and other amounts which give them a regular income
over the award minimum, though it may well be an income which varies
from time to time, even from week to week (ibid p.532).
It was further submitted that the income received while at work created an expectation
that caused employees to commit to necessary expenditures (including hire purchase
commitments) “up to the amount of his regular earnings”. It was submitted that when
employees went on leave, they were often unable to continue to meet regular
commitments. “Even worse … if annual leave is to be a period of relaxation and
recuperation, a worker, particularly a family man, may well wish to spend more on
entertainment of one kind or another. If he desires to go away on his leave he finds even
greater difficulty” (ibid. p 533).
Reliance was also placed on overseas experience and International Labour Organisation
(ILO) material. The Commission did not find these particularly helpful, though it noted
that “… the international information put to us discloses that the methods of payment on
leave overseas are complex and varied. … It is true that in some European countries and
under some collective bargaining agreements in the United States of America extra
payment is made for annual leave”.
The ILO’s Convention Concerning Annual Holidays with Pay (Revised) 1970, which
aimed at setting international standards, included the following:
• Every person taking the holiday envisaged in this Convention shall receive in
respect of the full period of that holiday at least his normal or average
remuneration (including cash equivalent of any part of that remuneration which
is paid in kind and which is not a permanent benefit continuing whether or not
the person concerned is on holiday), calculated in a manner to be determined by
the competent authority or through the appropriate machinery of each country.
• The amounts due in pursuance of paragraph 1 of this Article shall be paid to the
person concerned in advance of the holiday, unless otherwise provided in an
agreement applicable to him and the employer (Article 7).
Reflecting the fact that by 1971 State legislature and tribunals were moving faster than
the Commonwealth Conciliation and Arbitration Commission in this area, unions also
relied on the position appertaining under state systems. In all states other than Western
Australia and South Australia (where the position was broadly similar to that under
federal awards), employees continued to receive over-award payments when on annual
leave. In Victoria and New South Wales they also continued to receive the cash value of
any board and lodging provided. In New South Wales they further received payments of
“bonuses and other incentive earnings”. In Tasmania, most wages board determinations
included the following clause in relation to payment while on annual leave:
Each employee before going on leave shall be paid the amount of wages
he would have received in respect of the ordinary time which he would
have worked had he not been on leave during the relevant period.
In its judgement the Commission observed that a number of awards and agreements
provided for the payment of a loading on annual leave, the most common percentage
being 17.5 per cent. However, it refused to make a general ruling at that time (ibid, p.
Despite the Commission’s refusal to make a general ruling it ratified an agreement
providing for annual leave loadings of 17.5 per cent in the influential Metal Industry
Award in 1972 (146 CAR 463 and 146 CAR 775). In the following year the Queensland
Industrial Commission awarded a 17.5 per cent loading as a general standard (1973
AILR 694). In June of 1974 the South Australian Industrial Commission also declared
the 17.5 per cent loading to be a general standard. In the same year the New South
Wales Industrial Commission in Court Session awarded a 17.5 per cent loading on
annual leave to employees within its jurisdiction. The NSW Commission observed that
“the factual position [was that] despite lack of endorsement of the loading principle by
the Australian Commission, it is now as firmly entrenched in federal awards as it is in
New South Wales State awards”. The NSW Commission added:
Annual holiday loadings as a matter of award entitlement are a
comparatively recent industrial development. From a stage
approximately two years ago when it was rare to find such a provision in
awards, the position has now been reached where practically every
employee within the industrial arbitration system generally is entitled to
such a benefit.
These developments made it difficult for the Australian Commission not to accept that a
loading on annual leave had become common. In the Airports and Overseas Passenger
Terminals Employees Case of 1974 (166 CAR 610) it accepted that an annual leave
loading (of 17.5 per cent) had been established as a standard. In the Pastoral Award
Case of the following year a Full Bench accepted 17.5 per cent as the standard for
federal awards (1976 AILR Rep. 45). In practice, by 1975 the actions of state tribunals
and the parties to industrial agreements and consent awards had created a standard
which the Commission could no longer ignore. However, its determination of the 17.5
per cent standard did speed up the adoption of annual leave loadings in many federal
awards (see, for example, 170 CAR 75 and 177 CAR 292).
Thus since the end of 1974 “… a loading of 17.5 per cent on ordinary rates of pay
during periods of annual leave is a recognised and standard feature of State and federal
awards” (CCH 2000, p. 3053). The same source notes that though 17.5 per cent
continues to be the standard used by tribunals, employees in some major industries
receive a higher loading. For example in the coal industry it is 20 per cent. In the oil
industry loadings of 22.5 per cent are paid. New South Wales transport workers receive
a 25 per cent loading. In the stevedoring industry a loading of 27.5 per cent has been
paid since 1981 (ibid).
Tribunal determinations have sought to remove or reduce the notion that annual leave
loadings are by way of a “bonus” or “extraneous payment” (e.g. 60WAIG 1502 and
1982 AILR 367). Further, in the Transport Workers (Mixed Industries) Award the Full
Bench of the Australian Commission determined that the annual leave loading was to be
calculated on the employee’s award rate of pay rather than the actual rate of pay (1976
AILR 45). Our analysis of awards and certified agreements would suggest that in many
cases annual leave loadings are by way of a bonus or extraneous payment.
Annual Leave Loadings Under Federal Awards and Agreements
Employees whose conditions of employment are governed by the federal jurisdiction
may have these conditions regulated by one or more of three ways: awards of the
Australian Industrial Relations Commission (AIRC); certified agreements of the AIRC;
or Australian Workplace Agreements which are overseen by the Office of the
Employment Advocate (OEA).
Since the 1980s there have been attempts, through industrial legislation, to reduce the
effects of multi-enterprise awards and to have employment conditions governed by
either collective workplace agreements or individual agreements. Where collective
agreements are negotiated at the workplace these give rise to certified agreements.
Where individual agreements are arrived at, these give rise to Australian Workplace
Agreements. Some certified agreements are referred to as Division 2 Agreements. This
signifies that the AIRC’s jurisdiction in respect of these agreements derives from the
Commonwealth’s corporation powers under the Constitution, rather than the industrial
powers which have historically conditioned the operations of the AIRC. In theory,
Division 2 Agreements are less constrained than other certified agreements. Our
analysis suggests that Division 2 Agreements have not resulted in any radical changes to
annual leave loading provisions. For this reason we do not differentiate between the two
types of agreements in what follows.
In practice, there is a significant degree of overlap between awards, certified agreements
and Australian Workplace Agreements. Some awards not only prescribe substantive
conditions of employment, but also make provision for additional regulation by way of
both certified agreements and Australian Workplace Agreements (see, for example 100
per cent Pty Ltd [sic] Collective Bargaining Agreement 1997-1999, clauses 4 and 7).
Many of the Australian Workplace Agreements approved to January 2001 were
supplementary agreements to awards which specified most of the substantive conditions
of employment. As detailed below, over 80 per cent of certified agreements are
supplementary agreements to awards. Thus, in identifying conditions of employment,
the three forms of regulation are not mutually exclusive.
One reason for the overlap between awards and agreements is that the Workplace
Relations Act 1996 (WRA) restricts the authority of awards to 20 “allowable matters”.
Annual leave and annual leave loadings are included in these allowable matters. All
other conditions of employment must be the subject of either collective or individual
agreements. Awards have historically sought to regulate the totality of employment for
those employees under the award. Such awards are now the subject of “simplification”
as the non-allowable matters are excised and made the subject of certified agreements.
Our analysis suggests that the process of award simplification has given rise to a
plethora of certified agreements – in excess of 30,000. In some areas of employment,
such as that relating to nursing homes, there are hundreds of agreements, written in
identical or near identical terms, and deriving the substantive conditions from a parent
award. Large companies have a large number of agreements relating to either localities
or working groups. BHP, for example, is the first named party to nearly 120 certified
agreements. Unions are also the parties to many certified agreements. The
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and
Allied Services Union of Australia (CEPU) is the first-named party to over 450
agreements while the Construction, Forestry, Mining and Energy Union (CFMEU) is
the first-named party to over 1,640 agreements. Though the intent of the WRA is that
workplace agreements better reflect local conditions, our analysis suggests that at this
stage certified agreements often tend to provide uniform conditions around the parent
award from which they were spun.
In determining the extent of annual leave loadings that prevail in the federal system a
thorough analysis of the Australian Industrial Relations Commission’s database OSIRIS
has been undertaken. In all 180 awards and 250 certified agreements have been
examined. The agreements conform, in the main, to one of two principal forms: either
they supplement the parent award, and in so doing are silent about annual leave; or they
seek to prescribe conditions to the exclusion of an award, including annual leave
provisions. The second grouping can be further divided into two groups: certified
agreements made before 1996 and those made after the introduction of the WRA. The
significance of this divide is that the former agreements are, in effect, awards dating to a
time when agreements reached by the parties could be ratified by the AIRC either as
consent awards or certified agreements. The latter took on the form, structure and
wording of awards. Few, if any, of these certified agreements sought to change the
generally accepted industrial standards, including those relating to annual leave
provisions. As indicated below, few agreements seek to provide special conditions of
employment in relation to annual leave loadings.
The above would suggest that, in the main, annual leave provisions are regulated by
awards. Below we analyse our findings in respect to federal awards, certified
agreements and Australian Workplace Agreements. We also examine the annual leave
provisions of awards under the Western Australian Industrial Relations Commission.
The AIRC’s database lists 1,145 awards. Not all of these are general conditions awards.
Some are single-issue awards (long service leave, superannuation, plant closure etc) and
are not relevant to this analysis. A number of single enterprise awards are auxiliary or
supplementary awards. In these cases many of the substantive conditions of
employment (including annual leave provisions) are determined by a parent multi-
employer award. The database also contains the names of a number of awards that may
be deemed to have ceased to exist under s151 of the WRA.
In an attempt to determine the number of general conditions awards, the contents of 370
awards (32 per cent of all awards) were examined. This suggests that 11.7 per cent of
awards are single-issue awards; 49.7 per cent of awards are dependent awards; and 7.3
per cent of the listed awards have ceased to operate. In all 68.7 per cent of the awards
examined were not general conditions awards. The exclusion of single issue and
obsolete awards suggests that about 930 awards were relevant to the study of annual
Just under 19 per cent of the relevant awards were examined for their annual leave
loadings provisions. The 180 awards consisted of two groupings. The first group
consisted of the 100 awards identified by the AIRC database as the most frequently used
awards. These awards contain most of the parent awards. The remaining 80 awards
were chosen at random.
The survey suggests that, for the most part, federal awards contain fairly standard
annual leave conditions. Appendix 1 contains the annual leave clauses of the Metal
Industry (Northern Territory) (Consolidated) Award which is typical of the contents of
many federal awards in relation to leave. Table 1 below indicates the prevalence of
each provision of this award generally.
As suggested by table 1 four weeks of annual leave is a common award prescription.
Some awards provide for one or two additional weeks of leave for continuous shift
workers. Leave is accrued as an entitlement after 12 months of continuous service with
the employer. A small number of awards provide for the pro-rata accrual of leave based
on the number of weeks worked. Public holidays which occur during a person’s period
of annual leave do not exhaust that leave. Rather, additional entitlements accrue in the
case of such an occurrence. Persons whose normal duties require them to work on
weekends and/or public holidays are usually entitled to an additional week of annual
Table 1 Annual Leave Provisions of Metal Industry (NT) Award and General
Applicability of these Conditions
Matter Metal Industry (NT) Conditions Generality of MI
1. Period 4 weeks but in the case of shift Common to many
workers who work on Sundays and awards
Public holidays or in case of
continuous shift workers 5 weeks
2. Entitlement 12 months continuous service (less Common to most
period of annual leave) awards
3. Public holidays Annual leave exclusive of public Common to most
4. Broken leave Annual leave to be undertaken in one Common; some
or two continuous periods awards require
minimum of five
continuous days leave
at any one time
5. Continuous service Calculated to include absence “with Common
6. Calculation of Service Date of commencement of Not common
entitlements, duty of successor or
assignee of business
7. Leave to be taken Payment not to be made in lieu of Not common
8. Timing of Leave By agreement with employer and Relatively common
within 6 months of accrual
9. Leave before due date Permitted, but new leave does not Common
accrue until due date of first
10. Wage deduction Where employee terminates Relatively common
employment after taking leave before
due date any excess may be deducted
from amount payable on termination
11. Payment for leave Employee entitled to wages he/she Common. A number
would have received in respect of of awards provide for
ordinary time had employee not been “up front” payment of
on leave annual leave
12. Piece work Piece or bonus workers entitled to Not common
average rate inclusive of bonus
13. Leave loading 17.5 per cent for day workers and forCommon, but amount
shift workers of load varies
14. Preservation of shift Shift loading included in leave Common in most
allowance loading awards which cater
for shift work
15. Proportional leave on Terminated employees to be paid Provision of some
termination 2.932 hours for each working week in entitlement common
lieu of leave loading (including the 2.932
formula) but most
entitlements in cases
of lawful dismissal
16. Annual close down Where close down occurs for purpose Not common
of annual leave for to all or bulk of
employees (a) four weeks notice
required (b) pay those not entitled to
4 weeks leave at the rate of 2.923
hour per week worked
17. Exemptions Provisions not to apply where an Not common
award or agreement provides for
leave greater than prescribed in this
The calculation of annual leave entitlements seek to exclude entitlements for those days
not worked by employees without “reasonable cause”. The Metal Industry Award (NT)
provides that leave entitlements continue in the event of another taking over the
business. This does not appear to be a common award prescription. Further, the Metal
Industry (NT) provides that leave must be taken and cannot be paid out. This is a
common feature of awards in the construction industry but is not common elsewhere.
The Metal Industry Award (NT) specifies that employees on leave are entitled to wages
“in respect of ordinary time”, together with provision for any piece or bonus
entitlements, a 17.5 per cent loading, and the inclusion of any shift allowances. This is
the area of most variation in award conditions as discussed below. Most awards provide
for proportionate leave on termination, though not in the case of lawful dismissal. The
Metal Industry Award (NT) requires the employer to give four weeks’ notice in the
event of any close down. Other awards/agreements specify an annual close down as a
period in which leave is to be taken. Most awards attempt to “cover the field” in relation
to annual leave provision. In the case of “parent awards” such as the Metal Trades (NT)
Award, however, they are permissive of agreements or secondary awards providing for
more favourable conditions.
We could find only one award, an award relating to trainees, which did not provide for
annual leave and annual leave loadings. All but one of the most frequently used awards
provide for a loading of 17.5 per cent, perhaps a reflection of the “flow-on” inhibitions
on such awards. The exception related to the transport industry which provided for a
loading of 22 per cent. In contrast, about half of other awards surveyed provide for more
generous loadings, 20 per cent and 22.5 per cent being the most frequently used figures.
There are also differences in the base to which the loading applies. In about 55 per cent
of cases the loading applies to “ordinary pay”. This is usually defined to mean the
weekly rate of pay exclusive of penalties and allowances. In other cases, however, the
term “ordinary pay” is defined more generously as instanced by the Security Employees
(Victorian) Award. This award defines “ordinary pay” for the purposes of calculating
annual leave loadings to mean:
remuneration for the employees’ normal weekly number of hours of work
calculated at the ordinary time rate of pay and in addition will include: over-
award payments for ordinary hours of work; shift premium according to the
roster or projected roster; Saturday and Sunday premiums, according to the
roster or projected rosters; leading hand allowances; first aid allowance
The issue of shift allowances is a matter of consideration in many awards. Typically
employees’ working shifts have the shift allowances included in the amount to which
annual leave loadings apply. In addition, many awards providing for continuous shift
also provide an additional weeks’ leave for such workers.
The above would suggest that the vast majority of employees whose conditions are
governed by federal awards are in receipt of an annual leave loading. Though a loading
of 17.5 per cent is common, about half of these employees receive a loading in excess of
the 17.5 per cent. Further, though the loading applies to ordinary pay, in many cases this
is generously defined to include a range of allowances and penalties. As noted, some
awards provide for more than four weeks’ annual leave. Taking all these considerations
into account, it would be reasonable to assume that annual leave loadings constitute a
minimum of 17.5 per cent of average earnings for a period of four weeks. This would
suggest that for federal award employees the annual leave loadings add at least 1.4 to
1.8 per cent to the wages bill.
OSIRIS lists over 30,000 certified agreements. Our analysis suggests that a number of
these are agreements which have been superseded. For example, the Regency Electrical
and Mechanical Services Pty Ltd Enterprise Agreements for 1994, 1997-2000, 1999-
2000 and 2000-2003 are all to be found on the data base. Only the last of these
agreements is current.
Our analysis suggests that between 60 per cent and 70 per cent of the agreements listed
in OSIRIS are superseded agreements. In addition, a small number of agreements are
single issue agreements, or agreements seeking to clarify issues in existing agreements
or awards. We concluded that about 10,000 of the listed agreements were current and
not limited to one issue.
We analysed in depth the contents of 250 randomly chosen agreements. These
suggested that few provide for general conditions of employment. In the main they were
supplementary agreements that took up the award conditions that had to be shed in the
award simplification process. Just under 14 per cent of the agreements examined were
general conditions agreements, and thus provided for conditions of employment to the
exclusion of any award. In addition, 3.2 per cent of the agreements surveyed, and which
were related to a parent award, sought some variation of the award conditions as they
related to annual leave for the company or enterprise in question.
In short, nearly 20 per cent of certified agreements seek to govern, or partially govern,
annual leave conditions. The vast majority of extant agreements provide for the parent
award to prescribe annual leave condition2.
The small proportion of certified agreements seeking to vary the provisions of the
parent award do so in minor ways. These include: prescribing in more detail the dates
for the taking of annual leave; providing in greater detail for plant closure and the taking
of annual leave during the Christmas-New Year period; making minor adjustments to
the calculation of annual leave entitlements; increasing the annual leave loadings
prescribed by the award; adding to the two broken leave periods; the pro rata payment
of annual leave loadings to those retrenched or who voluntarily terminate their
employment; agreeing to vary the award to provide for additional leave for shift
Typical of such provisions are those of the ACT Independent School Sector Agreement which states that
“except as provided by this agreement, the conditions of employment will be in accordance with the
Award and relevant legislation”. Or, “the agreement shall be read and interpreted in conjunction with the
existing Award, but in any inconsistency the agreement shall take precedence (AMIEU – Oakly Abattoir
Pty Ltd Enterprise Agreement).
It will be seen that in cases where annual leave is governed by a parent award, certified
agreements have not provided a major instrument for flexibility and a departure from
common and uniform standards at this time.
In just over 40 per cent of certified agreements seeking to provide general conditions to
the exclusion of awards, the wording of the agreement, in respect of annual leave
conditions at least, reflect the general award conditions described in Table 1. For the
most part the wording follows the standard paragraphs to be found in awards. One
reason for this is the historical factor already alluded to, namely that a number of these
certified agreements could just as easily have been previously ratified by the AIRC as
With few, though notable, exceptions, the other agreements do not provide any radical
departure from awards or the accepted standards within awards. A number of
agreements seek, successfully, to simplify the turgid wording found in many awards in
relation to annual leave and annual leave loadings. A small number, about 2 per cent,
reduce the amount of loading provisions, while an equal number increase the loading
entitlements. Another small number of agreements seek to extend annual leave loadings
to part-time employees.
There were two areas in which certified agreements do seem to provide for a departure
from the general norms provided by awards. About 15 per cent of agreements provide
for the incorporation of annual leave loadings into annualised wages. The following
illustrate this approach:
As from August 1, 1998 … annual leave loadings will no longer be paid.
Employees, from this date, will receive an equivalent increase to their total
remuneration to cover this entitlement. Annual leave loading will be clearly
identified on employees’ Annual Remuneration Statement. (AAS
Employees’ Enterprise Agreement 1998)
No loading applies to annual leave as consideration for the loading is
incorporated in the rates of pay of this agreement. (Action Recovery
Services Pty Ltd Enterprise Agreement 1998).
… The parties agree that upon certification of this Agreement payment of
the 17.5 per cent annual leave loading will be converted to a 1.35 per cent
increase to employees’ all rate of pay. (ACTEW Corporation Ltd (Enterprise
Another 15 per cent or so of certified agreements provide for the concept of Paid Time
Off (PTO). The Queensland Fertilizer Project Phosphate Hill (Rowlands Surveys Pty
Ltd) Partnership Certified Agreement 1998 indicates the PTO concept.
Paid Time Off shall accrue at the rate of 7 hours per week … [or] 8 hours
per week where an employee is engaged on shift work. This accrual is in
consideration of annual leave, sick leave, public holidays, annual leave
loading and bereavement leave.
PTO is utilised for any period of authorised absence. In the case cited above,
the salary for the period of absence is paid “at the normal level”.
The analysis of certified agreements does not cause us to resile from our earlier estimate
that annual leave loadings are in the range of 1.4 to 1.8 per cent of the wages bill.
Analysis of the Workplace Agreements Database
The Department of Employment, Workplace Relations and Small Business maintains its
own database of certified agreements. DEWRSB has undertaken some analysis of these
agreements in relation to annual leave loadings. While this analysis did not seek to
determine the amount of loadings, it does enrich our examination of certified
agreements, particularly in the area of annual leave loadings absorption into annualised
The DEWRSB database includes 9,150 federal certified agreements which form the
basis of the following analysis. These were agreements certified between the December
Quarter of 1997 and the September Quarter of 2000 and which expired on or after 31
October 2000.3 This number is broadly in line with our estimate of the number of extant
agreements. DEWRSB’s analysis suggests that 33 per cent of the certified agreements
make provisions for annual leave loadings, a higher figure than that in our estimate.
One reason for this variation may be that where parent awards include annual leave
loadings, supplementary agreements are also recorded as leave loading inclusive.
DEWRSB estimates that the certified agreements cover 1.5 million employees. It
further estimates that 680,000 (45 per cent) of these employees were covered by
agreements which incorporated annual leave loadings provisions.
DEWRSB’s analysis would suggest that agreements in the service sector, broadly
defined, are more likely to include annual leave loadings provisions than other areas.
This may be the result of the less homogenous nature of employment in the service
sector than the manufacturing sector, and the longer and more pervasive influence of
awards in other sectors. Table 2 shows the percentage of agreements within each
industry that contain annual leave loadings provisions and the number of employees
covered by these provisions.
This sample of agreements does not include agreements which have nominally expired but which
continue to operate.
Table 2 Proportion of Agreements and Employees by Industry with Annual Leave
Industry Agreements (per cent)
Accommodation, Cafes and Restaurants 55.70 75.97
Agriculture, Forestry and Fishing 22.50 24.27
Communication Services 60.61 2.45
Construction 25.32 31.24
Cultural and Recreational Services 52.80 75.92
Education 51.38 40.19
Electricity, Gas and Water Supply 27.27 26.71
Finance and Insurance 57.01 55.33
Government Administration and
Health and Community Services 31.70 33.98
Manufacturing 38.27 41.83
Mining 28.74 27.09
Personal and Other Services 29.79 12.91
Property and Business Services 23.08 30.11
Retail Trade 63.73 81.91
Transport and Storage 33.37 30.31
Wholesale Trade 56.52 61.93
Total 33.22 45.17
Absorption of Annual Leave Loadings in Certified Agreements
One approach to increasing flexibility with respect to the payment of annual leave
loadings is to absorb them into the base rate of pay. Of the 9 150 agreements on the
Workplace Agreements Database which form the basis of this analysis, 566 have done
so, or about 6.2 per cent covering 74 000 employees. There are variations in the degree
of absorption by industry and state. Table 3 suggests that the retail industry has a greater
number of agreements that provide for the absorption of leave loadings than other
industries. Table 4 suggests about 6 per cent of all agreements provide for absorption,
though this varies in different jurisdictions.
Table 3 Proportion of Agreements and Employees with Annual Leave Loading
Absorbed into Base Pay by Industry
Industry (percentages) Agreements (per cent)
Accommodation, Cafes and Restaurants 17.45 11.78
Agriculture, Forestry and Fishing 10.00 17.84
Communication Services 12.12 5.69
Construction 1.95 1.69
Cultural and Recreational Services 3.20 2.05
Education 8.29 4.40
Electricity, Gas and Water Supply 12.73 5.43
Finance and Insurance 14.02 10.95
Government Administration and Defence 7.05 3.96
Health and Community Services 3.51 4.93
Manufacturing 5.40 3.55
Mining 7.09 12.24
Personal and Other Services 17.02 6.98
Property and Business Services 16.60 20.71
Retail Trade 23.73 2.71
Transport and Storage 8.17 3.26
Wholesale Trade 10.43 5.60
Total 6.19 4.94
Table 4 Agreements and Employees with Annual Leave Loading Absorbed into
Base Pay by State (per cent)
States States Agreements Employees
(per cent) (per cent)
AUS 8.77 4.34 QLD 8.16 4.92
ACT 5.22 2.03 SA 5.56 3.22
NSW 7.32 4.93 TAS 8.93 1.52
NT 5.37 0.68 WA 7.17 5.08
Total 6.19 4.94
The absorption of leave loadings in agreements is more distinct when examined by
union/non-union agreement coverage. In total, 74,000 employees are covered by
agreements which provide for the absorption of annual leave loading. 50,000 of these,
or 67.6 per cent, are covered by union agreements. Employees covered by non-union
agreements account for the remaining 24 000 of the74 000, or 32.4 per cent, covered by
this facility. This is fairly high given that employees covered by non-union agreements
account for only 22 per cent of total employees recorded on the database.
This means that only 4.3 per cent of the 1.16 million employees covered by union
agreements registered on the Workplace Agreement Database, are covered by the
absorption of leave loading. About 7.2 per cent of employees covered by non-union
agreements have had their leave loading absorbed into their base pay. Table 5 provides
details of absorption by union/non-union agreement coverage.
Table 5 Agreements and Employees with Annual Leave Loading Absorbed into
Base Pay by Union/Non-union Agreement status
Union or Non-union Agreement Agreements Employees
Union agreement 292 50067
Non-union agreement 274 23942
Total 566 74009
Union or non-union agreement (percentages)
Union agreement 4.05 4.29
Non-union agreement 14.08 7.19
Total 6.19 4.94
There is also a clear distinction between the private and public sector with respect to the
absorption of leave loading in agreements. Around 73.6 per cent of employees covered
by agreements which have absorbed leave loading are in the private sector (table 6). The
private sector makes up 68 per cent of all employees in the sample of agreements
analysed. This compares to the private sector accounting for 78.6 per cent of total
employment in Australia.
Table 6 Agreements and Employees with Annual Leave Loading Absorbed into
Base Pay by Sector (per cent)
Sector - with Provision Agreements Employees
Private 485 54438
Public 81 19571
Total 566 74009
Sector – percentage
Private 6.28 5.33
Public 5.66 4.10
Total 6.19 4.94
Australian Workplace Agreements (AWAs)
As already noted, unlike certified agreements which are collective agreements, AWAs
are individual agreements. They are individually signed, even in cases where a company
employs a large number of employees in terms of the same agreement.
The Workplace Relations Act has provided for AWAs since 1997. The OEA provides a
sample of 100 AWAs for examination4. We have examined this sample of AWAs in
relation to annual leave and annual leave loading provisions. We concluded that many
AWAs indirectly affect annual leave loadings because they prescribe increased wages.
In the absence of anything to the contrary, the increased wages translate into increased
annual leave loadings.
The sample “is representative of agreements which have been approved by the Employment Advocate
over the past three years. The sampling methodology ensures that the number of sample AWAs in any
given industry is directly proportional to the distribution of employees with AWAs by industry” (OEA,
AWAs have also sought to effect, in a direct way, annual leave and loadings provisions
of awards. They have sought to do so in a number of ways: absorption of loadings into
annualised wages or “all-up” rates of pay; cashing out of accrued annual leave;
increasing annual leave loading entitlements; increasing annual leave entitlements;
increasing the period for annual leave at reduced pay; reducing annual leave loading
entitlements; and eliminating annual leave loadings. Table 7 gives details of the
proportion of AWAs in the sample which included any of these provisions.
Table 7Proportion of AWAs Directly Affecting Annual Leave and/or Annual
Leave Loadings Provisions, January 2001
Variation to Award Conditions Proportion of Sample ( per cent)
Absorption of annual leave loadings 17
Cashing out of accrued annual leave 9
Additional annual leave loading entitlements 3
Additional annual leave entitlements 2
Additional annual leave at reduced pay 2
Reduction in annual leave loadings 1
Elimination of Leave Loadings 1
Source: Compiled from sample of AWAs publicly provided by OEA. Total does not sum as one AWA
included two of the listed variations.
We noted from data provided by DEWRSB that about 6 per cent of collective (certified)
agreements contained absorption of annual leave loadings provisions. Our analysis of
AWAs suggests that a greater proportion of these agreements provided for the
absorption of leave loadings into an all-up rate of pay or annualised pay. Absorption
appeared to be high in the mining sector (75 per cent of sample AWAs), construction
and wholesale (50 per cent each), communications (40 per cent) and property services
20 per cent. The small number of AWAs in each sector, however, would suggest
caution in interpreting this data.
One third of the sample AWAs provided for the cashing out of accrued leave. The major
reason for this cashing out seems to be the regulation of untaken leave and limiting such
leave to no more than 40 days. Illustrative of this approach is the AWA coded FIN01 in
the sample AWAs:
…You are entitled to twenty working days paid annual leave after each
completed year of service. Annual leave may only be accrued beyond
twenty days for a specific purpose and with your manager’s approval. You
cannot accrue more than forty days annual leave…
If you have previous service and have in excess of forty days accrued annual
leave at the commencement date of this AWA, you must provide your
manager with a plan showing how you will reduce the level of accrual
below forty days within the term of this AWA.
Provisions for cashing out accrued leave were most prevalent in the finance and
All of the AWAs providing for additional annual leave loadings were public sector
agreements. The relevant award provides a ceiling for the amount of loadings payable
(17.5 per cent of $51,378). The AWAs increase the threshold by 2.25 per cent.
Additional leave on reduced pay was also found only in the public sector. The rationale
of this provision is the better balancing of family and work responsibilities. Two AWAs
increased annual leave entitlements by one week. One of these AWAs was in the health
sector, the other in mining. One AWA, in property services, reduced annual leave
loadings to 12.5 per cent. Another, in retail, removed annual leave loadings and
provided that payment while on annual leave will be “based on the current ordinary
Our investigation of AWAs suggest that though they apply to a very small proportion of
the workforce, they provide for a greater degree of variation than awards or certified
Awards in Western Australia
In order to ascertain the incidence and amount of annual leave loadings under awards of
the State systems a review was made of the awards of the Western Australian Industrial
The WAIRC has a database of its awards. An examination of this database suggests that
there are 350 general conditions awards within the WA system. Each of these awards
was examined in relation to the annual leave component. What emerged was a fairly
uniform set of conditions, namely:
• 20 working days (four weeks) of continuous leave after 12 months of continuous
service with the employer
• the leave to be take in either one or two continuous periods
• holiday pay to be paid “up front”
• the payment to include a loading of 17.5 per cent
• upon termination through no fault of the employee, or upon resignation, the
employee to be paid by a loading based upon formula (approximately 3 hours for
each week worked)
• no payment in respect of loadings to be paid upon lawful termination for
About 75 per cent of WA awards conform, for the most part, to these uniform standards.
Most of these awards specifically preclude casual employees from annual leave loading
entitlements. By contrast, about 10 per cent of awards, predominantly in the public
sector, provide for proportionate annual leave entitlements based upon the number of
weeks service and did not specifically preclude casual employees (though in many cases
this is implied).
There is a degree of variation concerning the base to which the 17.5 per cent loading
applied. It appears as if two general rules apply: firstly that the 17.5 per cent loading is a
generally accepted industrial standard and thus provides an addition payment to
employees on recreational leave. The second approach is that the loading is to ensure no
diminution of pay through the loss of overtime, allowance payments and the like.
The first approach has resulted in approximately 20 per cent of awards prescribing the
loading as an additional amount on top of normal entitlements. That is, the base applied
for the loading includes all “normal” payments, including shift allowances.
The second approach has resulted in most awards prescribing the addition of a loading
to “ordinary rates of pay” as defined in the relevant award, exclusive of any other
factors. This approach more closely reflects the original motivation for the inclusion of
annual leave loading in awards.
The issue of shift allowances has clearly featured in negotiations and determinations
concerning annual leave loadings. Three approaches seem to have been taken to:
include the shift allowance in the base to which the loadings apply; award shift workers
a higher loading (many awards prescribe a rate of 17.5 per cent as a general norm and a
rate of 20 per cent for shift workers); and, where it is not possible to calculate shift
penalties, to provide for the payment of the average of such payments in the four weeks
prior to taking leave.
Three state awards do not provide for any loading, but rather that the annual leave be
paid at ordinary rates of pay. One of these relates exclusively to trainees. By contrast
nearly 25 per cent, catering predominantly for the maritime, construction, petroleum and
mining industries, prescribe a higher loading than 17.5 per cent. Invariably these awards
prescribe the loading in addition to any allowances rather than in lieu of such
allowances. Just over half of these awards prescribe a loading of 20 per cent. Of the
remainder, most prescribe a loading of 22.5 per cent. However, one provides for a
loading of 37.5 per cent, another for a loading of 50 per cent, and yet another for a
loading of between 27 per cent and 62 per cent. We have not sought to determine the
rationale for the higher loadings.
A number of awards provide for an additional week of annual leave (with loading) for
employees working north of 26 degrees latitude. A number of other awards prescribe
one or two additional weeks of leave to continuous shift workers and those whose
normal duties involve weekend work.
A small number of awards depart from the general formula. In two awards, all pay has
been annualised, including the annual leave loading. The brewing industry provides the
most distinctive annual leave payments provisions. The four awards relating to this
industry provide for an entitlement of 140 hours of annual leave (four weeks). Seventy
hours are to be paid at double time, and the rest at ordinary time. In addition, there is
provision for an annual bonus of 70 hours pay in the month of December. Thus, in
effect, annual leave is paid at double time.
The survey of WA awards would suggest that annual leave loadings most likely are still
in the range of 1.4 to 1.8 per cent of the wages bill previously suggested.
International Survey of Annual Leave Pay Arrangements
There are a number of factors that influence the procedures adopted in determining
employment standards, as well as the content of those standards. These include
international conventions or understandings, statutes, and contracts or agreements. In
general, the higher the level of abstraction, the less precise the terms or employment.
Thus the ILO Standard C132 in relation to annual leave, is less prescriptive and capable
of enforcement than Directives of the European Union. These Directives, in turn, are
less prescriptive than national legislation. Often, negotiating parties build upon
legislation by way of agreements or tribunal determinations to determine actual
conditions of employment, including in relation to annual leave.
In a number of countries Labour Codes or employment laws help regulate annual leave
entitlements. Often these are countries that do not have well-established systems of
collective bargaining. In these cases legislation provides the means of ensuring that a
range of employment rights are available to workers. In other cases the legislation
provides a guide, or minimum conditions that the parties may improve upon by way of
negotiations. An example of the first case is to be found in the People’s Republic of
China. This country’s Labour Act specifies that employees shall be entitled to “annual
vacation with pay after one year of service”. It adds: “The concrete measures shall be
formulated by the State Council” (s.45). An example of the second case is provided by
Pakistan. Legislation in this country prescribes that all employees must be given 14 days
recreational leave on full pay. The Factories Act 1934 (as amended) ensures, however,
that this is only a minimum standard:
The provisions of this Chapter [on annual leave with pay] shall not operate
to the prejudice of any rights to which a worker may be entitled under any
other enactments, or under the terms of any award, agreement or contract of
A number of countries – including the United States of America and the United
Kingdom – do not prescribe minimum standards since the developed systems of
collective bargaining are seen as capable of providing for fair employment conditions.
The above considerations make it evident that a survey of the annual leave provisions in
the legislation of different countries is of limited value. This is particularly so if
minimum standards are not enforced. Nevertheless, in the absence of other means of
examining leave conditions, surveys of international and national standards provide a
useful basis for comparisons with Australia.
The International Labour Standard1
The ILO’s International Labour Standard C132 Holidays with Pay Convention
(Revised), 1970 sets minimum standards in relation to annual leave that apply to all
employees with the exception of seafarers. We provide a summary of this Convention
below. The full text of the Convention may be found at Appendix 2.
Article 3 of the Convention sets the minimum length of paid annual leave at three weeks
for one year of service. Article 4 sets the minimum length of annual leave in the case of
periods of less than one year of service to a period proportionate to the time of service.
Article 7 states that:
1. Every person taking the holiday…shall receive in respect of the full
period of that holiday at least his normal or average remuneration (including
the cash equivalent of any part of that remuneration which is paid in kind
and which is not a permanent benefit continuing whether or not the person
concerned is on holiday…
Convention C132 has been ratified by 30 countries. A number of OECD member
nations, including Australia, have chosen not to ratify this convention.
Member states of the European Union are subject to the provisions of Directive
93/104/EC of the Council of the European Union relating to certain aspects of the
organisation of working time. This directive covers annual paid leave allocation and
establishes the right to normal wages or equivalent compensation during the leave
period. The Commission of European Communities is responsible for monitoring these
minimum provisions. As is evident from footnote 12 in relation to Irish legislation to
meet the Council’s directives, the Union has been able to exert an influence on
employment standards for member countries and for those countries seeking to join the
Union. A number of member nations have annual paid leave provisions that exceed
these minimum standards. For example, relevant Spanish legislation prohibits any leave
agreement which allows for less than 30 calender days of paid leave. An annual paid
leave period of 5 weeks is also quite common.
As noted above, a number of countries have legislated to provide minimum standards of
employment, including in the area of annual leave. Table 8 summarises the general
conditions in a select number of countries.3
Table 8 Legislative Provisions, Annual Leave with Pay, Selected Countries
Country Annual Paid Calculation of Leave Pay
Azerbayan4 20 Average monthly salary
Belgium5 20 Blue-collar workers: 14.8 per cent of gross
earnings from the previous year
White-collar workers: normal salary plus 1/16
of gross monthly salary
Botswana6 15 “the basic rate payable”
Canada 15 4 per cent - 6 per cent of annual wages
Croatia8 18 Average monthly salary in previous three
Denmark9 25 12.5 per cent of the annual wage
India10 20 “at a rate equal to the daily average of his total
Iran11 20 “equal to daily rate”
Ireland 20 At the normal wage
Japan13 10-15 At the average or normal wage
Jordan 10-15 “full pay”
Kazakhstan15 18 “average monthly pay”
Korea16 20 Average or normal wage depending on the
rules of employment
Latvia17 20 “average remuneration”
Lao18 18 “on full pay”
Lesotho19 15 “on full pay”
Macedonia 18-25 “full salary”
Mauritius21 16 “on full pay”
Namiba 24 “full remuneration”
New Zealand23 20 Average weekly earnings over the year
Nigeria “at least 6” “with full pay”
Pakistan 25 14 “at rate equivalent to daily rate”
Singapore26 5 At the gross rate of pay
South Africa27 21 “at equal remuneration”
Sudan28 20-30 “with full pay”
Tanzania 21 “with full pay”
United 20 At the normal wage
The table would suggest that most countries attempt to provide employees with paid
recreational leave. The table would further suggest that statutes attempt to ensure that
the level of remuneration is maintained during periods of recreational leave. It is further
evident that different countries provide different minimum standards in relation to the
number of days of recreational leave.
Incidence and Costs of Annual Leave Loading in Australia
Before attempting to quantify the costs of annual leave loadings, it is helpful to consider
the nature of any such costs and on whom they fall. One might at first be tempted to
think of leave loadings as a cost borne by employers. In fact, of course, it must be a cost
which is largely borne by employees. Employees would be paid a higher hourly rate of
pay if they were not paid an annual leave loading.
The textbook account of this situation runs as follows.5 Employees will be paid a wage
rate which is less than their marginal product by an amount equivalent to the cost of any
leave loading. Let us assume that each employee is entitled to 17.5 per cent of four
weeks pay as an annual leave loading. Let us also assume that each employee is paid
$100 per day. Now the actual work year is about 260 days [52 weeks x 5 days] so that
an employee who is entitled to an annual leave loading of 17.5 per cent of four weeks
pay will be paid $26,000 salary plus $350 leave loading. Accordingly, the employee
who is paid $26,000 per annum is actually earning $101.35 per day [$26,000 + $350].
This implies that the employee must produce output equivalent to $101.35 per day for
260 days per annum in order for the firm to be able to afford to give him/her $350 leave
loading per year. If the employee produced less than $101.35 per day the firm would
have to reduce the wage rate or reduce the leave loading entitlement in order to bring
the value of daily output into line with the daily rate of pay.
The situation of casual employees illustrates this proposition. Casual employees are paid
a 20 per cent salary loading in lieu of certain entitlements, generally including annual
leave loading. The loading, therefore, makes up their pay to the value of their full
marginal product with no reductions to fund an annual leave loading.
This analysis explains why it is that firms have, in some instances, cashed-out annual
leave loading entitlements. Cashing-out of the leave entitlement involves increasing the
hourly rate of pay in exchange for the elimination of the leave loading entitlement.
Accordingly, while it is in principle possible to estimate the total sum of money paid
each year under the name of annual leave loading, it is in fact no more than a form of
deferred earnings paid as a lump sum once per annum. On this analysis, if the money
was not paid to workers as an annual lump sum, it would be paid in the form of an
increased hourly rate of pay.
Flexibility in Annual Leave Loadings
Our analysis suggests that parent awards are the least flexible employment regulatory
instruments, and AWAs the most flexible. The flexibility continuum may be represented
GENERAL CONDITIONS AWARDS
This analysis is adapted from Lazear, E P Personnel Economics for Managers, New York, Wiley 1998
GENERAL CONDITIONS CERTIFIED AGREEMENTS
SUPPLEMENTARY CERTIFIED AGREEMENTS
GENERAL CONDITIONS AWAs
Least Flexible Most Flexible
It is useful to note that flexibility is a means, not an end in itself. In recent years, for
example, employers have sought the removal of annual leave. Between 1983 and 1992
employers made no less than eight attempts to have loadings removed at general test
cases. They have blamed the inflexibility of awards for their inability to do so. This is a
simplistic approach, and for two reasons. Firstly, it is axiomatic in industrial relations
that no party gives away hard won gains. Such gains have to be bought out, as is
illustrated by the fact that all cases of agreements involving the absorption of annual
leave loadings into annualised wages were ones in which there was a substantial
increase in the going rate. The second reason is that while awards have created a system
exhibiting a high degree of uniformity and consistency, generally awards continue to
provide the least generous leave and leave loadings entitlements. This is particularly the
case with parent awards. The greater flexibility inherent in collective and individual
agreements is a double edged sword: in the absence of peer pressure from other
employers (as is the case in parent awards) individual employers have conceded better
and more costly annual leave regimes in cases of individual bargaining. This approach
is accentuated by the WRA requirements that agreements meet the “no disadvantage”
test. This means that they may not reduce award standards taken as a whole. A
reduction in any one standard (such as annual leave loadings) must be offset by more
generous conditions elsewhere.
If a major aim of improved flexibility is cost minimisation in the area of annual leave
and the accompanying loadings then it is useful to consider that there are two primary
costs associated with annual leave loadings. In the first place there are direct costs of
paying the additional payments while employees are on leave. Despite the original
intent that loadings be set in place to ensure that take home pay was not reduced during
periods of recreational leave, the reality is that annual leave loadings today are
considered to be in the nature of a bonus or extraneous payment. We have suggested
that the cost of annual leave loadings would be in the range of 1.4 to 1.8 per cent of the
annual wages bill. This amounts to an economy-wide annual wage cost in the range
$3.78 - $4.86 billion or $450 - $578 per employee.
The second cost associated with annual leave loadings is the administrative cost. Each
organization must maintain records of each employee’s entitlements in this and other
areas of leave. The examples of variations in approaches to annual leave and loadings
instanced by our review of awards, certified agreements and AWAs can be analysed in
terms of their impact upon direct and administrative costs.
The absorption of penalties and allowances into an aggregated wages system is to be
found in awards, certified agreements and AWAs. As already noted, there is a price to
be paid for this consolidation. Each of the cases in which we observed absorption we
also observed a generous wage increase to bring this about. Thus, absorption may not
account for direct savings, at least not in the first instance. Further, though absorption
has the potential to simplify administration and reduce the costs attached, we noted
many cases in which absorption was accompanied by a commitment on the part of
management to provide annual details of the components of wages, including annual
leave loadings. It would seem that in these circumstances neither direct nor indirect
savings have been achieved, though absorption may provide for longer term initiatives.
Paid Time Off
This appears to be a recent, and not common, approach to annual leave. We did not find
any awards or AWAs which provided for PTO, and the number of certified agreements
which included such provisions were not numerous. Paid Time Off results in all
employees being entitled to seven hours of leave for each week worked (though there
may be variants of this formula). There are potential administrative advantages with this
approach which no longer requires the separate itemisation of each form of leave.
Further, all the cases which we examined provided for the abolition of annual leave
loadings as part of the development of PTO. This would suggest that any leave taken
was at ordinary or average earnings, a potential saving to organisations. The notion of
PTO reminds us that flexibility may be as important to employees as it is to employers.
PTO provides great flexibility to employees in the matter of leave in a cost neutral way
Reduction or Elimination of Loadings
We found few instances where loadings were either not included in awards, or where
they had been reduced or eliminated by agreements. We have noted the difficulties
inherent in trying to simply remove a benefit without compensation. It would appear as
if employers would be on more secure grounds in seeking the provision of annual leave
at ordinary or average rates or pay, rather than with loadings which constitute a bonus or
extraneous payment. We note that this is what the ILO Convention on recreation leave
provides for. We have also noted that in a number of awards annual leave payment is
based on the average of earnings in the four weeks prior to the taking of leave. There are
potential direct savings in both reducing and eliminating annual leave loadings.
However, it would appear that there would be no administrative advantages in reducing
leave loadings, and administrative costs may actually increase if each individual’s
average earnings had to be calculated before leave was taken.
Cashing out of Accrued Leave
This approach reduces the potential for an enterprise to have to restructure its staffing
arrangements in the light of a person or persons being entitled to and taking a large bank
of accrued leave. For example, if three or four years of accrued leave were to be taken
in conjunction with long service or other forms of leave, an enterprise could be required
to take on additional staff. However, cashing out accrued annual leave does not of itself
reduce either direct or administrative costs. The latter costs could increase.
Annual leave loadings are included in the “allowable matters” which may be included in
awards. We have shown that agreements, both collective and individual, have provided
for greater flexibility in the area of annual leave loadings. Thus a mechanism for greater
flexibility could be to remove annual leave loadings from the list of allowable matters.
Model Award Clause
It is unlikely, in present political circumstances, that the WRA will be varied so as to
remove annual leave loadings from the list of “allowable matters”. As noted on a
number of occasions, the original intent of leave loadings was to ensure that those on
leave would not suffer a loss of earnings. The present system has departed from this
intent and represents a clumsy and inefficient way of protecting the earnings of
employees on leave. As instanced by the wide variations in leave loading entitlements,
the system is also iniquitous. A method of inducing a system more in keeping with the
original intent, and which offered a simple, cost neutral, transparent and
administratively viable system of loadings may be to prevail upon the Industrial
Relations Commission to draft a standard annual leave loadings clause for insertion into
its awards in the same way that a model personal/carers’/sick leave clause has been
drafted.6 Such a clause would not apply to agreements, either collective or individual.
The purpose of such agreements is to enable the parties to tailor conditions of
employment to local needs and circumstances. Such an approach would assist in the
search for the holy grail of flexibility.
1. International Labour Organisation, 2001, C132 Holidays with Pay Convention
(Revised), 1970, http://ilolex.ilo.ch:1567/scripts/convde.pl?C132
2. Commission of the European Communities, 2000, Report of the Commission:
State of Implementation of Council Directive 93/104/EC of 23 November 1993
concerning aspects of organisational and working time (‘Working Time
Directive’), COM (2000) 787 final, Brussels: Commission of the European
3. Unless indicated otherwise in the references below, the major source of
information is the ILO’s data base
The Hospitality Industry – Accommodation Hotels, Resorts and Gaming Award 1995 Print P7500
http://natlex.ilor.org/scriptsd/natlex_cgi.exe?lang=E> Examples have been limited
to those whose legislation is reported in English.
4. Republic of Azerbaijan. Labour Code, ss. 111 & 114.
5. Commission of the European Communities, 2000, pp. 17-18, Blue collar workers
in Belgium receive their holiday wages from a holiday savings scheme to which
their employer is affiliated.
6. Botswana, Employment Act, ss. 99(8).
7. The State of Manitoba is provided as an example of the Canada experience. Acts
of Legislation of Manitoba 1792/2.
8. Croatia, Labour Act (No 758/95), ss. 39 & 45.
9. Denmark. Leave (Consolidated) Act No 167 of 1997. Danish workers receive 2.5
days paid holidays per month of employment in the calendar year. However, the
working week is considered to be 6 days. Public servants and workers who receive
the same conditions as public servants are excluded from the Act.
10. India. The Factories Act 1987, ss. 79 & 80.
11. Islamic Republic of Iran. Labour Code 1990, ss. 62 & 64
12. Ireland. Commission of the European Communities, 2000, p18. Irish workers have
received 4 weeks paid leave from 1999. The Organisation of Working Time Act,
1997 ensured that Irish conditions complied with directive 93/194/EC of the
Council of the European Union in relation to certain aspects of the organisation of
13. Japan. Labour Standards Law [Law No 49 of 1947 as amended]. Japanese workers
receive 10 working days annual leave as long as attendance is greater than 80 per
cent over the year. Workers employed for more than 1.5 consecutive years receive
an additional day of paid leave for each year of service up to a maximum of 20
14. Jordan. Labour Code, Law No 8 of 1996, s. 61. Annual paid leave increases from
10 to 15 days after 5 years of continuous service with the employer.
15. Kazakhstan. Labour Law 1999, s. 60.
16. Republic of Korea. Labour Standards Act - Law No 5309, 1997.
17. Latvia. Labour Code 1994, ss. 70 & 74.
18. People’s Democratic Republic of Lao. Act No 002 NA of 1994 Concerning
19. Lesotho. Labour Code Order 1992, s. 120.
20. Macedonia. Labour Relations Act 1993, ss. 43 & 72.
21. Mauritius Labour Act 1975 (as amended), ss. 21 & 21A.
22. Namibia. Labour Act 1992, s.39.
23. Holidays Act 1981-1991.
24. Nigeria. Labour Act 1971, s.48
25. Pakistan. Factories Act 1934 (as amended), ss. 49 B & C.
26. Singapore. Employment Act 1981 (as amended).
27. South Africa. Basic Conditions of Employment Act No 75 of 1987, ss. 21 & 22.
28. Sudan. 1997 Labour Code, s.44.
29. United Republic of Tanzania. Zanzibar Labour Code 1997, s.68.
30. United Kingdom. Department of Trade and Employment, 2001, DTI Employment
Relations – Working Time Regulations, <http://www.dti.gov.uk/er/
M0117CRN-Metal Industry (Northern Territory) (Consolidated) Award 1982
22- ANNUAL LEAVE
Period of leave
(a) A period of four weeks paid leave shall be allowed annually to an employee on
weekly hiring after twelve months continuous service (less the period of annual leave).
Seven day shift workers
(b) In addition to the leave hereinbefore prescribed, seven day shift workers, that is shift
workers who are regularly rostered to work ordinary hours on Sundays and holidays
shall be allowed seven consecutive days leave including non-working days.
Where an employee with twelve months' continuous service is engaged for part of the
twelve-monthly period as a seven day shift worker, he shall be entitled to have the
period of leave to which he is entitled as prescribed in sub-clause (a) hereof increased
by half a day for each month he is continuously engaged as aforesaid.
Annual leave exclusive of public holidays
(c) Subject to this subclause the annual leave prescribed by this clause shall be exclusive
of any of the holidays prescribed by clause 19 of this award and if any such holiday falls
within an employee's period of annual leave and is observed on a day which in the case
of that employee would have been an ordinary working day there shall be added to the
period of annual leave time equivalent to the ordinary time which the employee would
have worked if such a day had not been a holiday.
Where a holiday falls as aforesaid and the employee fails without reasonable cause
proof whereof shall be upon him, to attend for work at his ordinary starting time on the
working day immediately following the last day of the period of his leave he shall not
be entitled to be paid for any such holiday.
(d) The annual leave shall be given and taken in one or two continuous periods. If the
annual leave is given in two continuous periods, then one of those two periods must be
of at least 21 consecutive days, including non-working days. Provided that, if the
employer and an employee so agree, his annual leave entitlement may be given and
taken in two separate periods, neither of which is at least 21 consecutive days, including
non-working days, or in three separate periods.
Provided further that an employee may, with the consent of his employer, take short-
term annual leave, not exceeding four days in any calendar year, at a time or times
separate from any of the periods determined in accordance with this sub-clause.
Calculation of continuous service
(e) For the purpose of this clause service shall be deemed to be continuous
(i) Any interruption or determination of the employment by the employer if such
interruption or determination has been made merely with the intention of avoiding
obligations hereunder in respect of leave of absence;
(ii) Any absence from work on account of personal sickness or accident or on
account of leave lawfully granted by the employer; or
(iii) Any absence with reasonable cause, proof whereof shall be upon the
employee. In cases of personal sickness or accident or absence with reasonable
cause the employee to become entitled to the benefit of this sub-clause shall
inform the employer, in writing if practicable, within twenty four hours of the
commencement of such absence of his inability to attend for duty and as far as
practicable the nature of the illness, injury or cause and the estimated duration of
his absence. A notification given by an employee pursuant to clause 21 of this
award shall be accepted as a notification under this sub-clause.
(iv) Any absence from work by reason of any cause not being a cause specified in
this sub-clause shall not be deemed to break the continuity of service for the
purposes of this clause unless the employer during the absence or within fourteen
days of the termination of the absence notifies the employee in writing that such
absence will be regarded as having broken the continuity of service.
(v) In cases of individual absenteeism such notice shall be given in writing to the
employee concerned, but in cases of concerted or collective absenteeism notice
may be given to employees by the posting up of a notification in the plant in the
manner in which general notifications to employees are usually made in the plant
and by posting to each union whose members have participated in such concerted
or collective absenteeism a copy of it not later than the day it is posted up in the
(vi) A notice to an individual employee may be given by delivering it to him
personally or by posting it to his last recorded address, in which case it shall be
deemed to have reached him in due course of post.
(vii) In calculating the period of twelve months continuous service the following
absence shall be taken into account and counted as time worked up to 160
ordinary working hours in a twelve monthly period in the case of sickness or
(viii) Long service leave is taken by an employee in accordance with the Long
Service Leave Acts by which he is covered.
(ix) Other absences from work shall not be taken into account and shall not count
as time worked in calculating the period of twelve months continuous service.
Calculation of service
(f) Service before the date of this award shall be taken into consideration for the purpose
of calculating annual leave but an employee shall not be entitled to leave or payment in
lieu thereof for any period in respect of which leave or payment in lieu thereof has been
allowed. The period of annual leave to be allowed under this sub-clause shall be
calculated to the nearest day, any broken part of a day in the result not exceeding half a
day to be disregarded.
Where the employer is a successor or assignee or transmittee of a business, if an
employee was in the employment of the employer's predecessor at the time when he
became such successor or assignee or transmittee the employee in respect of the period
during which he was in the service of the predecessor shall, for the purpose of this
award, be deemed to be in the service of the employer.
Leave to be taken
(g) The annual leave provided by this clause shall be allowed and shall be taken except
as provided by sub-clauses (o) and (m) hereof. Payment shall not be made or accepted
in lieu of annual leave.
Time of taking leave
(h) Annual leave shall be given at a time fixed by the employer within a period not
exceeding six months from the date when the right to annual leave accrued and after not
less than four weeks' notice to the employee.
Provided that by agreement between an employer and an employee, annual leave may
be taken at any time within a period of twelve months from the date at which it falls due
and with less than four weeks' notice to the employee.
Leave allowed before due date
(i) An employer may allow an employee to take annual leave either wholly or partly in
advance before the right thereto has accrued. In such a case a further period of annual
leave shall not commence to accrue until after the expiration of the twelve months in
respect of which the annual leave or part thereof had been taken before it accrued.
Where annual leave or part thereof has been granted pursuant to paragraph (i), before
the right thereto has accrued is due, and the employee subsequently leaves or is
discharged from the service of the employer before completing the twelve months
continuous service in respect of which the leave was granted; and the amount paid by
the employer to the employee for the annual leave or part so taken in advance exceeds
the amount which the employer is required to pay the employee under sub-
clause (i) of this clause, the employer shall not be liable to make any payment to the
employee under sub-clause (i) of this clause, and shall be entitled to deduct the amount
of excess from any remuneration payable to the employee upon the termination of
Payment for period of annual leave
(j) Each employee before going on leave shall be paid the wages he would have
received in respect of the ordinary time he would have worked had he not been on leave
during the relevant period.
Subject to sub-clause (k) hereof each employee shall, where applicable, have the
amount of wages to be received for annual leave calculated by including the following
Time workers (other than piece-workers)
(i) (1) The rate applicable to him as prescribed by clauses 8, 12, 13, 32, and
(2) subject to paragraph (k)(ii) the rate prescribed for work in ordinary
time by clause 16 of the award according to the employee's roster or
projected roster including Saturday and Sunday shifts;
(3) the rate payable pursuant to clause 10 calculated on a daily basis
which the employee would have received for ordinary time during the
relevant period whether on a shift roster or otherwise.
(4) Any other rate to which the employee is entitled in accordance with
his contract of employment for ordinary hours of work; provided that this
provision shall not operate so as to include any payment which is of a
similar nature to or is paid for the same reasons as or is paid in lieu of
those payments prescribed by clauses 14, 18, 25 or 27 of this award, nor
any payment which might have become payable to the employee as
reimbursement for expenses incurred.
(ii) In the case of an employee employed on piece or bonus work or any other
system of payment by results, whether in accordance with clause 9 of this award
or otherwise, the rate which is the weekly average of payments made to the
employee under such scheme for the period actually worked by him during
ordinary hours during the last three monthly period in respect of such payments
have been calculated prior to the time of going on leave or termination of
employment as the case may be.
Loading on annual leave
(k) During a period of annual leave an employee shall receive a loading calculated on
the rate of wage prescribed by sub-clause (j) to the provisions of paragraph (ii) hereof.
The loading shall be as follows:
(i) Day workers - an employee who would have worked on day work only had he
not been on leave - a loading of 17-1/2 per cent.
(ii) Shift workers - an employee who would have worked on shift work had he not
been on leave - a loading of 17-1/2 per cent.
Provided that where the employee would have received shift loadings prescribed
by clause 16 had he not been on leave during the relevant period and such loadings
would have entitled him to a greater amount than the loading of 17-1/2 per cent,
then the shift loading as prescribed in subparagraph (j)(i)(2) of this clause shall be
included in the rate of wage prescribed by sub-clause (j) in lieu of the 17-1/2 per
Provided further that if the shift loading would have entitled him to a lesser
amount than the loading of 17-1/2 per cent then such loading of 17-1/2 per cent
shall be added to the rate of wage prescribed by sub-clause (j) but not including
Proportionate leave on termination
(l) An employee on weekly hiring who:
(i) After one week's continuous service in the first qualifying twelve monthly
period with an employer lawfully leaves the employment of the employer or his
employment is terminated by the employer through no fault of the employee; or
(ii) after twelve months' continuous service with an employer, leaves the
employment of the employer or his employment is terminated by the employer for
any reason, shall be paid at the appropriate rate of wage prescribed by sub-clause
(j) hereof for 2.923 hours for each five ordinary working days worked in respect of
which leave had not been granted under this clause.
Annual close down
(m) Where an employer closes down his plant, or a section or sections thereof, for the
purposes of allowing annual leave to all or the bulk of the employees on the plant, or
section or sections concerned, the following provisions shall apply:
(i) He may by giving not less than four weeks' notice of his intention to do so
stand off for the duration of the close down all employees in the plant or section or
sections concerned and allow to those who are not then qualified for a full
entitlement to annual leave for twelve months' continuous service pursuant to sub-
clause (a) hereof, paid leave on a proportionate basis at the appropriate rate of
wage as prescribed by sub-clauses (j) and (k) hereof for 2.923 hours for each five
ordinary working days worked.
(ii) An employee who has then qualified for a full entitlement to annual leave for
twelve months' continuous service pursuant to sub-clause (a) hereof, and has also
completed a further week or more of continuous service shall be allowed his leave,
and shall subject to sub-clause (f) hereof also be paid at the appropriate rate of
wage as prescribed by sub-clauses (j) and (k) hereof for 2.923 hours for each five
ordinary working days worked since the close of his last twelve monthly
(iii) The next twelve monthly qualifying period for each employee affected by
such close down shall commence from the day on which the plant, or section or
sections concerned is re-opened for work.
Provided that all time during which an employee is stood off without pay for the
purposes of this sub-clause shall be deemed to be time of service in the next
twelve monthly qualifying period.
(iv) If in the first year of service with an employer an employee is allowed
proportionate annual leave under paragraph (i) hereof, and subsequently within
such year lawfully leaves his employment or his employment is terminated by the
employer through no fault of the employee, he shall be entitled to the benefit of
sub-clause (l) of this clause subject to adjustment for any proportionate leave
which he may have been allowed as aforesaid.
(v) An employer may close down his plant for one or two separate periods for the
purpose of granting annual leave in accordance with this sub-clause. If the
employer closes down his plant in two separate periods one of those periods shall
be for a period of at least 21 consecutive days, including non-working days.
Provided that where the majority of employees concerned agree, an employer may
close down the plant, work section or sections in one, two or three separate
periods for the purpose of granting annual leave in accordance with this sub-
clause. Provided further that if an employer closes down his plant on more than
one occasion, one of those periods shall be for a period of at least fourteen
consecutive days including non-working days. In such cases, the employer shall
advise the employees concerned of the proposed dates of each close down before
asking them for their agreement.
Part close down and part rostered leave
(n) (i) An employer may close down his plant, or a section or sections thereof, for a
period of at least 21 consecutive days, including non-working days and grant the
balance of the annual leave due to an employee in one continuous period in
accordance with a roster.
Provided that by agreement with the majority of employees concerned, an
employer may close down his plant for a period of at least fourteen consecutive
days including non-working days and grant the balance of the annual leave due
to an employee by mutual arrangement.
(ii) An employer may close down his plant, or a section or sections thereof for a
period of less than 21 consecutive days and allow the balance of the annual leave
due to an employee in one or two continuous periods either of which may be in
accordance with a roster. In such a case the granting and taking of annual leave
shall be subject to the agreement of the employer and the majority of employees
in the plant, or a section or sections thereof respectively and before asking the
employees concerned for their agreement the employer shall advise them of the
proposed date of the close down or close downs and the details of the annual
(o) This clause shall not apply to any employer in respect of an employee to whom
pursuant to an award or agreement - Commonwealth or State - he is required to allow
annual leave to an extent equal to or greater than that prescribed herein.
The ILO’s International Labour Standard C132
C132 Holidays with Pay Convention (Revised), 1970
The General Conference of the International Labour Organisation, having been
convened at Geneva by the Governing Body of the International Labour Office, and
having met in its Fifty-fourth Session on 3 June 1970, and having decided upon the
adoption of certain proposals with regard to holidays with pay, which is the fourth item
on the agenda of the session, and having determined that these proposals shall take the
form of an international Convention, adopts the twenty-fourth day of June of the year
one thousand nine hundred and seventy, the following Convention, which may be cited
as the Holidays with Pay Convention (Revised), 1970:
The provisions of this Convention, in so far as they are not otherwise made effective by
means of collective agreements, arbitration awards, court decisions, statutory wage
fixing machinery, or in such other manner consistent with national practice as may be
appropriate under national conditions, shall be given effect by national laws or
1. This Convention applies to all employed persons, with the exception of seafarers.
2. In so far as necessary, measures may be taken by the competent authority or through
the appropriate machinery in a country, after consultation with the organisations of
employers and workers concerned, where such exist, to exclude from the application of
this Convention limited categories of employed persons in respect of whose
employment special problems of a substantial nature, relating to enforcement or to
legislative or constitutional matters, arise.
3. Each Member which ratifies this Convention shall list in the first report on the
application of the Convention submitted under article 22 of the Constitution of the
International Labour Organisation any categories which may have been excluded in
pursuance of paragraph 2 of this Article, giving the reasons for such exclusion, and shall
state in subsequent reports the position of its law and practice in respect of the
categories excluded, and the extent to which effect has been given or is proposed to be
given to the Convention in respect of such categories.
1. Every person to whom this Convention applies shall be entitled to an annual paid
holiday of a specified minimum length.
2. Each Member which ratifies this Convention shall specify the length of the holiday in
a declaration appended to its ratification.
3. The holiday shall in no case be less than three working weeks for one year of service.
4. Each Member which has ratified this Convention may subsequently notify the
Director-General of the International Labour Office, by a further declaration, that it
specifies a holiday longer than that specified at the time of ratification.
1. A person whose length of service in any year is less than that required for the full
entitlement prescribed in the preceding Article shall be entitled in respect of that year to
a holiday with pay proportionate to his length of service during that year.
2. The expression year in paragraph 1 of this Article shall mean the calendar year or any
other period of the same length determined by the competent authority or through the
appropriate machinery in the country concerned.
1. A minimum period of service may be required for entitlement to any annual holiday
2. The length of any such qualifying period shall be determined by the competent
authority or through the appropriate machinery in the country concerned but shall not
exceed six months.
3. The manner in which length of service is calculated for the purpose of holiday
entitlement shall be determined by the competent authority or through the appropriate
machinery in each country.
4. Under conditions to be determined by the competent authority or through the
appropriate machinery in each country, absence from work for such reasons beyond the
control of the employed person concerned as illness, injury or maternity shall be
counted as part of the period of service.
1. Public and customary holidays, whether or not they fall during the annual holiday,
shall not be counted as part of the minimum annual holiday with pay prescribed in
Article 3, paragraph 3, of this Convention.
2. Under conditions to be determined by the competent authority or through the
appropriate machinery in each country, periods of incapacity for work resulting from
sickness or injury may not be counted as part of the minimum annual holiday with pay
prescribed in Article 3, paragraph 3, of this Convention.
1. Every person taking the holiday envisaged in this Convention shall receive in respect
of the full period of that holiday at least his normal or average remuneration (including
the cash equivalent of any part of that remuneration which is paid in kind and which is
not a permanent benefit continuing whether or not the person concerned is on holiday),
calculated in a manner to be determined by the competent authority or through the
appropriate machinery in each country.
2. The amounts due in pursuance of paragraph 1 of this Article shall be paid to the
person concerned in advance of the holiday; unless otherwise provided in an agreement
applicable to him and the employer.
1. The division of the annual holiday with pay into parts may be authorised by the
competent authority or through the appropriate machinery in each country.
2. Unless otherwise provided in an agreement applicable to the employer and the
employed person concerned, and on condition that the length of service of the person
concerned entitles him to such a period, one of the parts shall consist of at least two
uninterrupted working weeks.
1. The uninterrupted part of the annual holiday with pay referred to in Article 8,
paragraph 2, of this Convention shall be granted and taken no later than one year, and
the remainder of the annual holiday with pay no later than eighteen months, from the
end of the year in respect of which the holiday entitlement has arisen.
2. Any part of the annual holiday which exceeds a stated minimum may be postponed,
with the consent of the employed person concerned, beyond the period specified in
paragraph 1 of this Article and up to a further specified time limit.
3. The minimum and the time limit referred to in paragraph 2 of this Article shall be
determined by the competent authority after consultation with the organisations of
employers and workers concerned, or through collective bargaining, or in such other
manner consistent with national practice as may be appropriate under national
1. The time at which the holiday is to be taken shall, unless it is fixed by regulation,
collective agreement, arbitration award, or other means consistent with national
practice, be determined by the employer after consultation with the employed person
concerned or his representatives.
2. In fixing the time at which the holiday is to be taken, work requirements and the
opportunities for rest and relaxation available to the employed person shall be taken into
An employed person who has completed a minimum period of service corresponding to
that which may be required under Article 5, paragraph 1, of this Convention shall
receive, upon termination of employment, a holiday with pay proportionate to the length
of service for which he has not received such a holiday, or compensation in lieu thereof,
or the equivalent holiday credit.
Agreements to relinquish the right to the minimum annual holiday with pay prescribed
in Article 3, paragraph 3, of this Convention or to forgo such a holiday, for
compensation or otherwise, shall, as appropriate to national conditions, be null and void
or be prohibited.
Special rules may be laid down by the competent authority or through the appropriate
machinery in each country in respect of cases in which the employed person engages,
during the holiday, in a gainful activity conflicting with the purpose of the holiday.
Effective measures appropriate to the manner in which effect is given to the provisions
of this Convention shall be taken to ensure the proper application and enforcement of
regulations or provisions concerning holidays with pay, by means of adequate
inspection or otherwise.
1. Each Member may accept the obligations of this Convention separately-
(a) in respect of employed persons in economic sectors other than agriculture;
(b) in respect of employed persons in agriculture.
2. Each Member shall specify in its ratification whether it accepts the obligations of the
Convention in respect of the persons covered by subparagraph (a) of paragraph 1 of this
Article, in respect of the persons covered by subparagraph (b) of paragraph 1 of this
Article, or in respect of both.
3. Each Member which has on ratification accepted the obligations of this Convention
only in respect either of the persons covered by subparagraph (a)of paragraph 1 of this
Article or of the persons covered by subparagraph (b) of paragraph 1 of this Article may
subsequently notify the Director-General of the International Labour Office that it
accepts the obligations of the Convention in respect of all persons to whom this
This Convention revises the Holidays with Pay Convention, 1936, and the Holidays
with Pay (Agriculture) Convention, 1952, on the following terms:
(a) acceptance of the obligations of this Convention in respect of employed
persons in economic sectors other than agriculture by a Member which is a party
to the Holidays with Pay Convention, 1936, shall ipso jure involve the
immediate denunciation of that Convention;
(b) acceptance of the obligations of this Convention in respect of employed
persons in agriculture by a Member which is a party to the Holidays with Pay
(Agriculture) Convention, 1952, shall ipso jure involve the immediate
denunciation of that Convention;
(c) the coming into force of this Convention shall not close the Holidays with
Pay (Agriculture) Convention, 1952, to further ratification.
The formal ratifications of this Convention shall be communicated to the Director-
General of the International Labour Office for registration.
1. This Convention shall be binding only upon those Members of the International
Labour Organisation whose ratifications have been registered with the Director-General.
2. It shall come into force twelve months after the date on which the ratifications of two
Members have been registered with the Director-General.
3. Thereafter, this Convention shall come into force for any Member twelve months
after the date on which its ratifications has been registered.
1. A Member which has ratified this Convention may denounce it after the expiration of
ten years from the date on which the Convention first comes into force, by an Act
communicated to the Director-General of the International Labour Office for
registration. Such denunciation should not take effect until one year after the date on
which it is registered.
2. Each Member which has ratified this Convention and which does not, within the year
following the expiration of the period of ten years mentioned in the preceding
paragraph, exercise the right of denunciation provided for in this Article, will be bound
for another period of ten years and, thereafter, may denounce this Convention at the
expiration of each period of ten years under the terms provided for in this Article.
1. The Director-General of the International Labour Office shall notify all Members of
the International Labour Organisation of the registration of all ratifications and
denunciations communicated to him by the Members of the Organisation.
2. When notifying the Members of the Organisation of the registration of the second
ratification communicated to him, the Director-General shall draw the attention of the
Members of the Organisation to the date upon which the Convention will come into
The Director-General of the International Labour Office shall communicate to the
Secretary-General of the United Nations for registration in accordance with Article 102
of the Charter of the United Nations full particulars of all ratifications and acts of
denunciation registered by him in accordance with the provisions of the preceding
At such times as may consider necessary the Governing Body of the International
Labour Office shall present to the General Conference a report on the working of this
Convention and shall examine the desirability of placing on the agenda of the
Conference the question of its revision in whole or in part.
1. Should the Conference adopt a new Convention revising this Convention in whole or
in part, then, unless the new Convention otherwise provides:
a) the ratification by a Member of the new revising Convention shall ipso jure
involve the immediate denunciation of this Convention, notwithstanding the
provisions of Article 19 above, if and when the new revising Convention shall
have come into force;
b) as from the date when the new revising Convention comes into force this
Convention shall cease to be open to ratification by the Members.
2. This Convention shall in any case remain in force in its actual form and content for
those Members which have ratified it but have not ratified the revising Convention.
The English and French versions of the text of this Convention are equally authoritative.