What Do Employers Need To Pay Superannuation On?

Employers play an important role in the retirement savings of many Australians. 

Since the early ’90s, employers are required by law to pay superannuation contributions on behalf of their employees. 

The minimum amount of super an employer has to pay is called the superannuation guarantee (SG). 

But not every employee and not every type of pay is guaranteed superannuation contributions; this is where the confusion starts. 

Small business owners who have to manage their employees’ super contributions may find themselves asking: 

  • Who qualifies for SG contributions? 
  • Do you make super contributions on annual leave?
  • Does it apply to termination payments?
  • Do you pay it on commissions and bonuses? 

To help remove the confusion, we have put together answers to nine common questions employers ask about their superannuation obligations.

1. What is the Superannuation Guarantee?

The super guarantee (SG) is a percentage of a person’s ordinary time earnings (OTE).

It is paid on top of an employee’s wage or salary and goes into their superannuation fund.

The Australian Government sets the SG rate, which is currently at 9.5% and is due to rise to 10% on 1 July, 2021.

SG applies to full-time, part-time and some casual employees.

Employers are required to pay super when an employee is paid $450 or more before tax in a month and is over 18 years.

However, employees under 18 years old who are being paid $450 or more before tax in a calendar month and work more than 30 hours a week also qualify for super.

One of the most confusing parts to the SG is determining what is classified as OTE.

OTE refers to what your employees earn for their ordinary hours of work.

Typically, an employee’s ordinary hours of work are specified in a relevant award or agreement.

According to the Australian Taxation Office, ordinary hours of work can include commissions, shift loadings and allowances, but it doesn’t include overtime payments.

2. Is Superannuation Paid on Overtime?

As described by the Fairwork Ombudsman, work performed outside the ordinary hours listed in an award or agreement qualifies as overtime.

Overtime does not count as an employee’s OTE and as a result, employers do not have to pay super on top of overtime payments.

However, there are cases where hours can’t be identified as overtime. For example, if an agreement removes the distinction between ordinary hours and other hours or there are no ordinary hours of work stipulated, then super is usually payable. 

3. Is Superannuation Paid on Commissions?

A commission is usually paid to a salesperson for making a sale. 

It is considered a piece of the action and a way to motivate and reward sales reps. Often it is calculated as a percentage of sales.

If sales commissions are part of an employee’s OTE, then an employer must pay the SG on top of that.

4. Is Superannuation Paid on Bonuses?

A bonus is typically a fixed amount offered for achieving a specific objective.

There are many different types of bonuses, such as end of year bonuses, sales bonuses, performance bonuses, retention bonuses, sign-on bonuses and referral bonuses.

If the bonus is part of a person’s OTE, then an employer is required to pay the SG on top of the bonus.

Types of bonuses that are classified as OTE include performance bonuses, sales bonuses and Christmas bonuses.

Bonuses exempt from the SG are ones that reward work that is not classified as OTE, including overtime bonuses as the overtime is not part of the employee’s ordinary hours of work.

5. Is Superannuation Paid on Allowances?

There are various types of allowances and whether you have to pay the SG on it depends on what the allowance is being paid for.

Again, the rule of thumb is whether the payment counts as a person’s OTE.

Allowances that are generally considered as OTE, include:

  • Unconditional extra payment allowance that is paid to an employee, regardless of whether they spend that amount or not
  • An allowance for a working condition such as danger, dirt or height
  • Retention allowance

Allowances that are not considered as OTE, include:

  • Expense allowance that is expected to be fully spent 
  • An allowance for a qualification or special duty such as a first aid certificate
  • A travel allowance

6. Is Superannuation Paid on Sick Leave?

You are required to pay super for paid sick leave, as this type of leave is part of a person’s OTE, but you are not required to pay super on unpaid sick leave.

7. Is Superannuation Paid on Annual Leave?

Paid annual leave is considered part of an employee’s OTE and therefore, requires super contributions. Unpaid annual leave does not attract super contributions.

8. Is Superannuation Paid on Long Service Leave?

This depends on how the employee takes his or her long service leave.

If the person takes it while they are still employed and returns to that employer, then yes, super payments apply.

But if an employee were to take their long service leave as a lump sum payment upon their retirement or termination of employment, then super contributions do not apply.

9. Is Superannuation Paid on Terminations?

A termination pay or payout is typically made when an employee resigns, is dismissed, is made redundant or dies. 

The employment termination payment (ETP) is a lump sum made up of several types of pay, which can include:

  • Unused annual leave
  • Unused long service leave
  • Unused sick leave
  • A redundancy payment
  • A gratuity
  • Compensation for wrongful dismissal

Most termination payments do not require super contributions. These include pay for:

  • Unused annual leave
  • Unused long service leave
  • Unused sick leave 
  • Unfair dismissal

Some termination pays, such as payment in lieu of notice where wages paid during the notice period are classified as the employee’s OTE, do require super contributions.

What Comes Next?

If you discover super is payable, the next step is to multiply your employee’s OTE for the period by the SG rate.

Some employees may have opted to have extra super taken out of their pay. If this is the case, you use that higher percentage.

To help you determine whether you need to pay super, the ATO has this handy tool to help employers with their super obligations.

Disclaimer: Our articles and videos are here to inform you and the information provided does not constitute financial, taxation, legal, business or other professional advice and should not be relied upon as such. See our full disclaimer here.

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