Is Superannuation Payable on Long Service Leave?
Clarify superannuation requirements for long service leave payments. Understand the conditions determining when LSL is superable.
In Australia, superannuation is a compulsory system where employers make regular contributions into a fund for eligible employees’ retirement savings. Long service leave is another employee entitlement, providing a period of paid leave after an extended term of service with a single employer. This leave rewards loyalty and continuous commitment within a workplace.
Understanding Superannuation Guarantee Obligations
Employers in Australia must contribute to their employees’ superannuation under the Superannuation Guarantee (SG) scheme. The Superannuation Guarantee (Administration) Act defines the framework for these contributions, calculated as a percentage of an employee’s Ordinary Time Earnings (OTE). For the 2024-2025 financial year, the Superannuation Guarantee rate is 11.5% of OTE, increasing to 12% from July 1, 2025.
An employer must pay superannuation for employees 18 years or older who earn more than $450 (before tax) in a calendar month. OTE includes most payments for an employee’s ordinary hours of work, such as base salary, wages, commissions, shift loadings, and paid leave like annual and sick leave. Overtime payments are typically not included in OTE if they are clearly identifiable.
Superannuation and Long Service Leave Payments
Whether superannuation is payable on long service leave depends on how the leave is utilized. If an employee takes long service leave while still employed, the payments received during this period are considered part of their Ordinary Time Earnings (OTE). Employers are required to make Superannuation Guarantee contributions on these payments, treating them as regular wages or salary.
A different rule applies if long service leave is paid out as a lump sum upon termination of employment. In such instances, superannuation is generally not payable on the long service leave amount. The Australian Taxation Office (ATO) does not consider these lump sum payments for unused long service leave as part of OTE when employment ceases.
Other Leave and Termination Payments
Superannuation obligations also extend to other types of paid leave. Payments for annual leave and sick leave are generally included in an employee’s Ordinary Time Earnings (OTE), meaning superannuation contributions must be made on these amounts while the employee is taking the leave.
Many payments made upon the termination of employment are not subject to Superannuation Guarantee contributions. For example, lump sum payments for unused annual leave paid out when employment ends are typically not considered OTE for superannuation purposes. Genuine redundancy payments and payments for unused sick leave are generally excluded from OTE. An exception exists for payments in lieu of notice; if an employer pays an employee instead of requiring them to work a notice period, this payment is usually considered OTE and superannuation is payable on it.