Annual leave payments and superannuation guarantee

Author Paul Munro 8 May 2012
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Payments that are ‘ordinary time earnings’ (OTE) are subject to superannuation guarantee (SG) employer contributions. But how are annual leave payments that are not straightforward ‘payment for leave taken’ treated?

Q  Our company has an enterprise agreement which provides for a number of payments that relate to annual leave. Apart from the normal provision with respect to taking annual leave on ordinary pay, the agreement also provides for cashing out of annual leave, annual leave loading and payment on termination of employment. Our question relates to the calculation of the 9 per cent employer contribution with respect to the SG. We understand that paid annual leave is included in the employee’s OTE, but what about any amount cashed out instead of taking leave, as well as the treatment of annual leave loading and payment of pro rata annual leave on termination of employment?

A  The type of payments included (and excluded) from an employee’s OTE for the purpose of the SG legislation are set out in an Australian Taxation Office’s (ATO) Superannuation Guarantee Ruling (SGR 2009/2). This ruling states that lump sum arrears payments of unused annual leave or salary or wages otherwise than on termination of employment (eg cashing out of annual leave) is considered OTE for the purpose of the SG legislation.

However, according to the ATO’s ruling, neither annual leave loading nor payment of unused annual leave on termination of employment are included in OTE for the purpose of the SG.

Source: Paul Munro, IR Consultant.
Paul Munro
Paul has over 30 years’ experience providing advice to employers on workplace issues, with over 25 years as a workplace relations advisor with New South Wales Business Chamber. Paul has also been in a workplace advisory role with employer organisations in the timber industry and club industry. more from Paul
1 Comment
TreenaB  11 May 2012,09:42   
Hi Paul, Great timing for this subject as I am in the midst of adapting our payroll system for the upcoming implementation of EA containing cash out terms. Just to clarify, cashing out of annual and/or sick leave incl annual leave loading terms within a registered EA is considered OTE & subject to Super Guarantee payment.. The only time SG is not paid for annual leave & loading is upon actual termination of employment. Thank you
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