No, superannuation is generally not paid on annual leave loading when it is paid out as a lump sum upon the termination of employment.
This aligns with the general rule that superannuation is not payable on certain lump sum termination payments, including unused annual leave. When an employee's employment ends, and they receive a payment for their accumulated but untaken annual leave, this payment, along with any associated annual leave loading, is typically not considered Ordinary Time Earnings (OTE) for superannuation guarantee purposes.
Understanding Superannuation and Termination Payments
Superannuation guarantee (SG) contributions are generally paid by employers on an employee's Ordinary Time Earnings (OTE). OTE includes most types of payments for ordinary hours of work, such as:
- Wages and salary
- Commissions
- Shift loadings
- Certain allowances
However, specific payments made upon the termination of employment are often excluded from OTE, even if they would ordinarily attract superannuation during ongoing employment. This distinction is crucial for understanding superannuation obligations.
Key Exclusion on Termination:
Payments for unused leave, such as annual leave and long service leave, when paid out as a lump sum upon the ending of employment, do not generally attract superannuation contributions. This applies to the base leave amount and, by extension, any associated leave loading, as the loading is directly tied to the leave itself.
Why Annual Leave Loading on Termination is Not Superable
While annual leave loading during ongoing employment can sometimes be superable if it's considered part of ordinary earnings and not genuinely compensation for lost overtime, its treatment changes significantly on termination.
The Australian Taxation Office (ATO) guidance specifies that most lump sum payments made on termination are not OTE. This includes:
- Unused Annual Leave: Payments for untaken annual leave.
- Unused Long Service Leave: Payments for untaken long service leave.
- Payments in Lieu of Notice: Payments made instead of a notice period.
Since annual leave loading is an extra payment on top of annual leave, and unused annual leave itself is not superable upon termination, the loading follows the same principle.
Summary of Common Termination Payments and Superannuation
Here's a quick overview of how superannuation generally applies to different payments received when employment ends:
| Payment Type | Superannuation Payable (Generally) | Notes |
|---|---|---|
| Wages/Salary up to last day | Yes | Super is paid on the final wages earned up to the last day of employment. |
| Unused Annual Leave | No | Payments for accumulated annual leave that was not taken. This includes the annual leave loading component. |
| Unused Long Service Leave | No | Payments for accumulated long service leave that was not taken. |
| Redundancy Payments | No | Genuine redundancy payments (up to the tax-free limit) are generally not superable. |
| Payments in Lieu of Notice | No | Payments made instead of requiring the employee to work out their notice period. |
| Commissions (up to last day) | Yes | Commissions earned and payable up to the last day of employment are generally superable. |
| Bonuses (up to last day) | Yes | Regular bonuses that are part of OTE, earned and payable up to the last day of employment. Performance-related bonuses paid as part of ordinary earnings can be superable. |
Note: This table provides general guidance. Specific circumstances or enterprise agreements may have different provisions, but for superannuation guarantee purposes, the ATO guidelines are paramount.
Practical Insights for Employers and Employees
- Employers: Ensure your payroll systems are configured to correctly distinguish between superable and non-superable payments, especially during termination. Consulting the latest ATO Superannuation Guarantee Ruling (SGR) is crucial for compliance.
- Employees: When receiving your final pay, be aware of which components attract superannuation and which do not. This helps in understanding your total entitlements. For more detailed information on superannuation entitlements, you can refer to resources from organizations like the Australian Taxation Office or reputable superannuation funds.
Understanding these rules ensures clarity regarding final pay entitlements and superannuation contributions upon the cessation of employment.
