Superannuation Guarantee and Annual Leave Loading
Is your business fully compliant with superannuation guarantee obligations?
At the beginning of 2019, the ATO revised their position regarding superannuation payable on annual leave loading. The ATO now view that leave loading forms part of ordinary time earnings for SG contributions (and in their opinion always did). Sounds simple enough but it has left employers with more questions than answers.
We have provided some clarity on the key points detailed below:
Leave Loading – What is it?
Leave loading is an extra payment that entitled employees receive whilst on annual leave; usually an extra 17.5% on top of their normal wage. Leave loading is a common feature in some industry awards in Australia, but not all employees are entitled to it.
Who is entitled to leave loading?
Leave loading is a legal entitlement in some industry awards. An award is a legal document setting out minimum rates of pay and employment conditions for a particular industry. According to Fair Work Australia, there are 122 different awards in effect which cover most of Australia’s working population.
Some examples of industries whose awards include leave loading include: building and construction, trades, manufacturing, hospitality, hair and beauty and real estate. To find out which award covers your occupation and to see if you’re entitled to leave loading, go to the Fair Work Ombudsman website.
Superannuation and Annual Leave Loading
In recent years some employers calculated their superannuation contributions for employees on the basis that annual leave loading was excluded from the definition of ordinary time earnings (OTE – which broadly includes salary and wages paid to an employee in relation to their ordinary hours of work).
In February 2019, the ATO revised their position clarifying that annual leave loading payments are treated as OTE and subject to superannuation guarantee contributions unless an employer can provide evidence to show that the entitlement to annual leave loading is referrable to an employee’s lost opportunity to work overtime and penalty rates.
Annual Leave Loading On Termination
In the case of an employee’s termination, that employee will be entitled to be paid out for both annual leave and annual leave loading if they are entitled. This entitlement is based on a provision of annual leave on termination within the Fair Work Act 2009. The provision states that if an employee is terminated and they have a period of untaken annual leave, they must be paid out what they would have been paid had they taken that period of annual leave.
As an employer, what is my obligation?
If you are an employer that has employees covered by an award we recommend the following steps:
- Review your superannuation treatment of annual leave loading payments;
- Review the applicable award for the purpose of determining whether there is historic evidence as to the purpose of annual leave loading entitlements paid; and
- Self-assess the superannuation treatment of annual leave loading payments going forward and ensure there is sufficient evidence in place to support this position.
