Is superannuation payable on termination payments?

If you’re planning to switch jobs or your employment was terminated for any reason, it’s helpful to understand your rights before deciding on next steps. Often, there’s confusion surrounding eligible termination payments and whether such payments add to your superannuation or not.

When it comes to whether your employer must pay superannuation on termination payments, the general answer is no. However, there are exceptions to the rule. To give you some background, superannuation contributions by the employer are only payable on your ordinary time earnings or OTE. Consequently, only those amounts that constitute OTE in your termination payments qualify for super contributions by the employer.

What does the ATO consider terminations payments?

The ATO defines an employment termination payment as a lump sum amount paid out to you at the end of your employment with a business. Furthermore, it states that employment termination payments can include:

• Payments instead of notice where your employer terminates you, and you don’t have to serve the notice period.
• Payments for unused sick leave.
• Redundancy payments or compensation paid to an employee for wrongful dismissal.
• Gratuity payments that are generally payable to employees who have served with an organisation for over five years.
• A golden handshake or severance payment is a typically large sum paid out to you if you involuntarily leave your position. This payment is in addition to your standard termination payment.
• Any invalidity payment made for permanent disability caused in the course of employment.
• Any payout from an early retirement scheme.

Is superannuation paid on termination payments?

The superannuation guarantee is only applicable on payments that constitute OTEs. For instance, if your employer chooses to pay out the relevant notice period. In that case, you will receive superannuation on termination payments instead of notice, as they form a part of your OTE. Superannuation is also payable on wages earned during the notice period if you’re required to work out the notice.

Your employer won’t be required to pay super contributions on other termination payments that don’t form a part of OTE. For example, termination payments like redundancy, unfair dismissal or a golden handshake don’t form a part of your wages. Therefore, no superannuation is payable on these amounts as part of your termination payment.

Furthermore, an ATO ruling expressly excludes lump sum payments in place of unused annual leave, unused long service leave, and unused sick leave made to an employee on termination of employment from being OTE. Consequently, you’re not eligible for super on termination payments for these amounts.

Does a salary sacrifice arrangement apply to termination payments?

A salary sacrifice agreement means you entered into a formal arrangement with your employer to receive a lower amount of salary or wages in return for benefits of a similar value. These benefits may include goods or services or contributions to your superannuation account. For example, suppose your pre-tax income is $70,000 per annum. In that case, you can choose to receive $60,000 as wages and salary sacrifice $10,000 per pay period to boost your super.

According to the ATO, you cannot roll over your termination payments into superannuation. Termination payments are also not deemed salary or wages, and therefore should not form part of a salary sacrifice arrangement.

What can I do if my employer is not making super contributions?

Contact your super fund if you suspect your employer has not paid your super contributions. You can then ask them for information on all the payments made into your super account or check your account statement online.

You can also use the ATO website’s calculator to determine how much super your employer should have paid each quarter. If you find any discrepancies or believe your employer has not been making adequate super contributions, report the issue on the ATO website to have it investigated.

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