Is superannuation payable on annual leave loading?

Calculation of wages

Read time: 2 mins

In March 2019, the Australian Tax Office (ATO) clarified that superannuation is payable on annual leave loading. As usual with tax issues, it’s complicated.

According to the ATO, if leave loading is granted under a specific award or enterprise agreement and isn’t tied to a worker’s ability to work overtime, it’s classified as Ordinary Time Earnings (OTE) and, therefore, is subject to superannuation.

This clarification has significant implications for the Road Transport Industry, where it’s common for workers to receive leave loading as part of their compensation. For instance, under the Road Transport and Distribution Award 2020, workers are entitled to an annual leave loading of 17.5 percent.

Before the ATO’s clarification, there was some uncertainty about whether this was considered OTE, but now we know if the leave loading isn’t directly linked to lost overtime opportunities, superannuation must be paid on it.

However, there’s a caveat. If you can demonstrate that the annual leave loading is compensation for a missed opportunity to earn overtime, it’s excluded from OTE and isn’t subject to superannuation. So, if an employee’s contract explicitly states that the leave loading is for lost overtime opportunities, it won’t attract superannuation.

This highlights the importance of clear documentation. To avoid disputes, ensure the reason for leave loading is explicitly defined in employee contracts or enterprise agreements. If the ATO questions your superannuation payments, having this evidence can support your claim that the leave loading is or isn’t tied to overtime work.

The ATO’s clarification highlights the need for transparency and compliance in our financial practices. It presents both a challenge and an opportunity for us to review our payroll systems and ensure we’re correctly accounting for superannuation on leave loading.

In conclusion, if you wish to exclude annual leave loading from an employee’s OTE, you need written evidence showing that the leave loading compensates for lost overtime opportunities. This evidence can be the relevant employment agreement or a documented policy that both you and your employees understand.

If you don’t have this evidence, obtaining it promptly or start including annual leave loading in your employees’ OTE when calculating their super guarantee payments is crucial.

If you have questions, speak to a NatRoad Advisor.