Do You Pay Superannuation on Overtime?

Superannuation is Australia’s retirement savings system. It ensures that money earned by an employee is regularly put into an investment fund, becoming available for their use upon retirement. Employers generally have a legal requirement to contribute to these funds for their eligible employees. This system aims to promote self-funded retirement savings, thereby reducing reliance on publicly funded pensions.

Understanding Ordinary Time Earnings

The foundation for calculating mandatory superannuation contributions in Australia is known as Ordinary Time Earnings (OTE). OTE represents the earnings an employee receives for their ordinary hours of work. Employers are obligated to pay a minimum Superannuation Guarantee (SG) contribution, which is currently 12% of an employee’s OTE. This figure is applied to earnings before tax.

Payments included in OTE are base salary and wages for regular working hours, commissions, and shift loadings. Certain allowances, such as those for remote work or specific job conditions, are also part of OTE, provided they are not purely reimbursements for expenses. Payments for paid leave, including annual leave, sick leave, and long service leave, are also considered OTE as they relate to an employee’s ordinary work period.

Conversely, several payments are generally excluded from OTE calculations. Expense reimbursements are not counted. Certain lump sum payments, such as those made for unused annual leave or long service leave upon an employee’s termination, are also typically excluded. Other payments like parental leave are also not considered OTE. It is important to distinguish OTE from an employee’s total salary or wages, as OTE specifically focuses on earnings from ordinary hours.

Superannuation on Overtime

Superannuation is typically not paid on overtime work if the hours are genuinely outside an employee’s ordinary hours. This general rule applies regardless of how overtime payments are calculated. The Superannuation Guarantee (Administration) Act 1992 specifies that employers must pay super on OTE, and overtime is generally not included in this definition.

However, there are exceptions where superannuation may be payable on overtime. If an employee’s ordinary hours are not clearly defined in an award or agreement, or if overtime amounts cannot be distinctly identified, all hours worked may be considered ordinary hours for superannuation. This means that if an employment contract for a salaried employee covers all hours worked without separating out genuine overtime, the entire salary could be treated as OTE.

Payments for hours worked that are considered “ordinary” even if they attract penalty rates can accrue superannuation. Shift loadings for evening, weekend, or public holiday work are generally OTE unless defined as overtime by an award or agreement. An employment contract or enterprise agreement may also state that superannuation will be paid on all earnings, including overtime. In such cases, the specific terms of the agreement override the general rule regarding overtime.