How to Calculate Superannuation From Total Package

Superannuation is a mandatory retirement savings scheme in Australia, designed to provide financial support for individuals in their later years. Employers contribute a percentage of an eligible employee’s earnings into a superannuation fund on their behalf. This article aims to clarify how superannuation is calculated, particularly when an individual’s compensation is presented as a “total remuneration package.” The superannuation contribution typically does not apply to the entire package.

Understanding Your Total Remuneration Package

A “total remuneration package” represents the complete value of an employee’s compensation, extending beyond just their base salary. This comprehensive package often includes various components such as the base salary, superannuation contributions, and other non-cash benefits. Examples of these additional benefits might encompass car allowances, health insurance premiums paid by the employer, performance bonuses, or even professional development allowances. While the total remuneration package provides a holistic view of an employee’s compensation, it is important to understand that superannuation is generally not calculated on the entire sum.

Identifying Ordinary Time Earnings (OTE)

Ordinary Time Earnings (OTE) serve as the specific earnings base upon which Australian employers are legally required to calculate their Superannuation Guarantee (SG) contributions. This is a crucial distinction when considering a total remuneration package. OTE typically includes regular payments for hours worked, such as wages, salary, and commissions. It also encompasses shift loadings, paid leave (like annual leave and sick leave), and over-award payments.

Conversely, certain types of payments are generally excluded from OTE. These exclusions often include overtime payments, which are usually for hours worked beyond an employee’s ordinary hours. Expense reimbursements, which simply cover costs incurred by the employee for work purposes, are also typically not part of OTE. Most fringe benefits and lump sum termination payments are also excluded from this calculation base.

The Superannuation Guarantee Rate and Maximum Contribution Base

The Superannuation Guarantee (SG) rate is the legislated percentage that employers must contribute to an eligible employee’s superannuation fund. As of July 1, 2025, the SG rate is scheduled to increase to 12% of an employee’s Ordinary Time Earnings (OTE). This rate is subject to change over time, as has been seen with previous incremental increases.

In addition to the SG rate, there is a “Maximum Contribution Base” (MCB) that limits the earnings on which employers are required to pay superannuation. For the 2025-26 financial year, the MCB is set at $62,500 per quarter. This means that an employer is not obligated to pay super guarantee contributions on any portion of an employee’s earnings that exceeds this quarterly limit. The MCB is indexed annually to average weekly ordinary time earnings (AWOTE), ensuring it adjusts with general wage levels.

Step-by-Step Calculation and Practical Considerations

Calculating superannuation involves applying the Superannuation Guarantee (SG) rate to your Ordinary Time Earnings (OTE), while observing the Maximum Contribution Base (MCB). For example, if an employee’s OTE for a quarter is $20,000 and the SG rate is 12%, the employer’s compulsory superannuation contribution would be $2,400 ($20,000 x 0.12). If an employee’s quarterly OTE reaches $70,000, exceeding the 2025-26 MCB of $62,500, the employer’s super contribution would be capped at 12% of the MCB, resulting in a contribution of $7,500 ($62,500 x 0.12).

Salary sacrificing, where an employee agrees to forgo a portion of their pre-tax salary in exchange for an employer making additional superannuation contributions, impacts this calculation. When an employee salary sacrifices into super, the employer’s compulsory SG contributions are generally calculated on the reduced OTE amount after the sacrifice. This arrangement can affect an employee’s take-home pay and potentially their overall superannuation contributions.

Employees can typically find details of their OTE and superannuation contributions on their payslips. Payslips usually itemize gross earnings, deductions, and superannuation contributions, allowing individuals to verify that their employer is meeting their obligations. If discrepancies are noted, employees can consult their employment contract or relevant industrial awards, which may specify superannuation contributions or earnings definitions that differ from the standard Superannuation Guarantee (SG) rules. Some awards or enterprise agreements might mandate higher contributions or different earnings definitions.