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  • Ordinary time earnings – annual leave loading

    Superannuation Guarantee Ruling SGR 2009/2 provides our view that annual leave loading will be ordinary time earnings (OTE) unless it is referrable to a lost opportunity to work overtime:

    • 238. By way of exception an annual leave loading that is payable under some awards and industrial agreements is not OTE if it is demonstrably referable to a notional loss of opportunity to work overtime. However, the loading is always included in 'salary or wages'.

    Most awards do not specifically state the reason the annual leave loading entitlement is provided.

    Relying on historical opinions of the initial purpose of annual leave loading won't be enough to demonstrate that annual leave loading is a lost opportunity to work overtime.

    Compliance approach to annual leave loading in previous quarters

    If employers have self-assessed on the basis that their annual leave loading is not OTE, and there is a lack of evidence to demonstrate the purpose of the entitlement, there is a risk that they may have historical superannuation guarantee (SG) shortfalls and be liable for the SG charge.

    We acknowledge the uncertainty around this topic, and the evidentiary difficulties in identifying the purpose for annual leave loading entitlements. For this reason, we won't apply compliance resources to scrutinising why annual leave loading was paid in historical quarters, where:

    • the employer self-assessed that the annual leave loading was not OTE, with the reasonable position that their annual leave loading was for a notional loss of opportunity to work overtime
    • there is no evidence that is less than five years old (the statutory period employers are expected to keep records relating to their SG affairs) that suggests the entitlement was for something other than overtime.

    Evidentiary requirements for future quarters

    As an entitlement to annual leave loading arises under an award or agreement, we would be satisfied that the entitlement is ‘demonstrably referrable’ to a lost opportunity to work overtime, if there is written evidence related to the entitlement.

    This could be satisfied:

    • if the wording in the relevant instrument clarifies the reason for the entitlement
    • by other written evidence (for example, a documented policy) that clarifies the reason for the entitlement, and reflects the mutual understanding of both parties to the agreement that gives rise to the entitlement.

    If employers do not have this evidence:

    • we would expect them to ensure they obtain it as soon as practicable, alternatively
    • assess their future entitlements on the basis that their annual leave loading falls within OTE.

    Where employers have obtained this evidence as soon as practicable, we won't apply compliance resources to scrutinising the purpose of the leave loading for quarters before they obtained the evidence.

      Last modified: 12 Mar 2019QC 58207