Do you pay super on leave loading?

Most Aussie workers continue to receive their ordinary time earnings, or regular wage, when they take their annual leave, whether with permission from their employer or due to temporary or seasonal business closures. However, some workers may receive annual leave loading, an additional payment that can be as much as 17.5 per cent of your usual wage.

As per the Australian Taxation Office (ATO), your employer needs to include annual leave loading payments in your earnings and calculate the superannuation guarantee (SG) contributions using the total. This is applicable only if you qualify for SG contributions.  

When are superannuation contributions on leave loading not payable?

Your employer may decide that they don’t need to pay any super on annual leave loading if they consider the leave loading to be compensation for overtime wages. If you’ve ever been employed by an Australian business, you may be familiar with the different kinds of leave you are entitled to take. As long as you don’t exceed your allotted leave, you’ll continue to receive your wages even while on holiday.

Usually, your holiday pay is at the same rate as your regular earnings, but some employers may pay an additional amount called annual leave loading. Your employer may choose to classify these as either ordinary time earnings or as compensation for the overtime wages you could’ve earned if you’d worked during the leave period. 

However, your employer should have some record of their classification of annual leave loading. Without this, the ATO could rule that your employer has withheld super contributions and find them liable to pay the super guarantee charge.

Such evidence needs to be from the past five years, as employers are required to keep super guarantee-related records for that duration. For instance, you may have a work contract that specifies not just that you are entitled to receive annual leave loading but also explicitly mentions that such a payment is instead of any overtime wages.

What if my employer has not paid superannuation contributions on leave loading?

If your employer has not paid super on annual leave loading, and they’ve not mentioned in writing that they consider annual leave loading as overtime, they could face penalties. At the very least, they’ll have to pay a super guarantee charge along with any interest and administration charges. They may also need to pay a Part 7 penalty, which the ATO charges when businesses fall short on their SG contributions. Employers themselves may sometimes discover that they’ve not paid super on annual leave loading and file an SG Charge statement with the ATO. 

In such cases, the ATO gives employers the choice of ensuring that they document the nature of the annual leave loading as overtime. This may prevent the ATO from taking action against the employer for previous failures to pay super on leave loading.

Alternatively, employers need to ensure that all future SG contributions are calculated with annual leave loading added to the employee’s earnings. Given that not all employees may be entitled to either annual leave loading or super guarantee contributions, employers may have to maintain separate records along with their stated policy for employees with different entitlements. 

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