Super for Annual Leave Loading

23rd April 2019 

Finally, there’s a ruling on Super for Annual Leave Loading.

Clarifying its 2009 ruling that superannuation is not payable on overtime earnings, the ATO has recently advised that Super should be paid on annual leave loading unless employers can demonstrate that it is intended to compensate for a lost opportunity to work overtime while on leave.

The ATO noted that “most awards do not specifically state the reason the annual leave loading entitlement is provided”. The awards most commonly applicable to Master Electricians members, the Electrical, Electronic and Communications Contracting Award, the Clerks – Private Sector Award and the Manufacturing and Associated Industries and Occupations Award are in this group. As such, going forward super should be paid on leave loading for these award covered employees.

Previously, employers had relied on the historical basis of the initial purpose of annual leave loading being for a lost opportunity to work overtime to exclude the payment from super contributions. However, this is no longer sufficient.

Further, the history of leave loading extends to losses not limited to overtime but also different allowances and shift loadings that might otherwise have been applicable while the worker performed work.

For future quarters, the ATO says that it 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 evidence could include:

  • wording in the award or agreement that “clarifies the reason for the entitlement”; or
  • written evidence, such as a documented policy, that clarifies its reason and “reflects the mutual understanding of both parties to the agreement that gives rise to the entitlement”; or
  • further that the workers are regularly working overtime throughout their normal workcycles.

Overaward Payments that include Leave Loading

It is common for employers to have established overaward rates of pay for many of their workers, and that in doing so, the value of leave loading has been incorporated into these payments. Although our advice is that these arrangements are best expressed in a written employment contract, in these cases the employer is already effectively paying the super on the leave loading component by virtue of this being part of their rate of pay.

Note: It is a misconception that leave loading is ‘optional’ for award covered employees. It is an entitlement that workers receive under their award, it is common that employers offer a higher rate incorporating the entitlement…

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