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Superannuation on annual leave loading

Annual leave loading is included in ordinary time earnings (OTE) unless it is clearly linked to lost overtime.

Last updated 25 May 2021

How it works

Annual leave loading is an extra payment that may be paid to an employee on top of their base rate during periods of annual leave.

As an employer, you work out super guarantee payments for your employees based on their OTE. OTE includes annual leave pay but not overtime.

Generally, you include annual leave loading in OTE because it's related to annual leave. However, you don't include annual leave loading in OTE if you can show that it's paid to compensate employees for being unable to work overtime while on leave.

If this is your situation, this page explains the evidence you will need.

Evidence you will need

To omit annual leave loading from your employees' OTE, you need written evidence showing that the leave loading is linked to a lost opportunity to work overtime.

This evidence can be either:

  • the relevant award or agreement
  • a documented policy, understood by you and your employees, that states the reason for the leave loading entitlement.

If you don't have written evidence, you need to either:

  • obtain it as soon as possible
  • start including annual leave loading in your employees' OTE when working out their super guarantee payments.

If you obtain written evidence as soon as possible, we won't review how you treated annual leave loading in previous quarters.

Example: documenting the reason for annual leave loading

QWERTY Co has a mix of day workers and shift workers, who are all covered by a modern award.

For day workers, the award includes an entitlement to annual leave loading and paid overtime. However, the award does not clearly link overtime and annual leave loading.

For shift workers, the award has a different annual leave loading entitlement and no paid overtime. The award indicates that this annual leave loading compensates shift workers for the lost opportunity to earn shift allowances while on leave.

QWERTY Co believes the day workers are paid annual leave loading to compensate for the lost opportunity to work overtime while on leave. This is based on advice the company has received about the historical reasons for the annual leave loading.

QWERTY Co prepares a policy document that clarifies the reason for annual leave loading. It includes the following paragraph:

The entitlement to annual leave loading under clause [X] is compensating for the lost opportunity for overtime, except where [the award] indicates otherwise.

QWERTY Co regularly deals with a union representing its workers. The company provides a copy of the policy document to the union to ensure it reflects their understanding of the reason for annual leave loading.

When working out super guarantee for its workers, QWERTY Co self-assesses the annual leave loading as:

  • excluded from OTE for day workers
  • included in OTE for shift workers.
End of example

Annual leave loading for previous quarters

We understand that some employers have been unsure how to correctly treat annual leave loading. Also, you may not have evidence that identifies the purpose of annual leave loading paid in previous quarters.

We won't review how you've treated annual leave loading in previous quarters if both of the following apply:

  • you self-assessed that annual leave loading was not OTE because it was for a loss of opportunity to work overtime
  • there is no evidence that the annual leave loading was for something other than overtime.

However, if there is evidence that the annual leave loading was for something other than overtime, then the loading should have been included in OTE. In this case you have a super guarantee shortfall. You will need to lodge a super guarantee charge (SGC) statement with us and pay the shortfall.

We cannot waive any of the components of the SGC, including interest and administration fees. However, we can reduce the additional penalties, considering:

  • the uncertainty and practical difficulties employers have faced in this area
  • the fact that you voluntarily lodged an SGC statement.