Do You Pay Super on Long Service Leave?
Understand when superannuation applies to long service leave payments in Australia. Navigate the rules for LSL, for both employees and employers.
Long service leave and superannuation are two important components of employee entitlements, particularly for those with a long tenure at a single employer. A common question is whether superannuation contributions are required on payments related to long service leave. This article explores the details of superannuation obligations concerning long service leave payments.
Understanding Long Service Leave and Superannuation
Long service leave is a period of additional paid leave granted to employees who have completed an extended period of service with the same employer. This entitlement typically applies after a threshold of continuous employment, often ranging from seven to ten years, though specific rules vary by state or territory. It is distinct from annual leave.
Superannuation, often referred to as “super,” is a compulsory system in Australia where employers make contributions to a retirement fund on behalf of their employees. This system helps individuals save for their financial needs in retirement. The Superannuation Guarantee (SG) sets the minimum percentage of an employee’s ordinary time earnings that an employer must contribute, which is 12% for the 2025-26 financial year.
Superannuation on Long Service Leave Payments
Superannuation is generally payable on long service leave when taken as paid leave during employment. These payments are considered part of an employee’s “ordinary time earnings” (OTE) for superannuation guarantee purposes. OTE typically includes payments for an employee’s ordinary hours of work, along with items like commissions, bonuses, shift loadings, and various types of paid leave.
When an employee takes long service leave and continues to receive their regular pay, the employer is obligated to calculate and pay superannuation contributions on this amount. The payment for long service leave taken is treated similarly to other forms of paid leave, such as annual leave or sick leave, in terms of superannuation liability. The Superannuation Guarantee Act defines OTE, which forms the basis for these superannuation calculations.
Scenarios and Specifics
The superannuation treatment of long service leave payments can differ significantly depending on the circumstances. If long service leave is paid out as a lump sum upon the termination of employment, superannuation contributions are generally not required on this amount. This exclusion applies whether the termination is due to resignation, redundancy, or retirement. Payments for unused leave entitlements, including long service leave, are specifically excluded from the definition of ordinary time earnings when paid out on termination.
If unused long service leave is paid out during employment (cashed out while the employee remains employed), this payment could be considered OTE and subject to superannuation, though specific conditions and industrial instruments may influence this. Industrial awards or enterprise agreements may also influence long service leave entitlements, and in some cases, might specify additional superannuation obligations beyond the minimum Superannuation Guarantee. Portable long service leave schemes exist in certain industries, such as building and construction or coal mining, allowing employees to accrue leave across different employers within that industry.
Employer Obligations and Record Keeping
Employers have specific responsibilities to ensure compliance with superannuation obligations for long service leave payments. This includes accurately calculating the superannuation contributions based on an employee’s ordinary time earnings when long service leave is taken. The 12% Superannuation Guarantee rate for the 2025-26 financial year must be applied to these eligible payments.
Employers are required to make timely contributions to their employees’ chosen superannuation funds, typically on a quarterly basis. Maintaining accurate and detailed payroll records is a legal requirement, demonstrating how superannuation contributions were calculated and paid for each employee, including periods of long service leave. These records, including pay slips, must be kept for a minimum of five years.