Superannuation Guarantee on Annual Leave Loading – Clear as Mud!
One of the complexities thrown up by the mindlessly complicated industrial relations system is to do with whether or not employers have to pay 9.5% super on the “Annual Leave Loading” (typically 17.5%) which is required to be paid to employees in under some industrial instruments. Superannuation is payable on the amount representing Ordinary Time Earnings (OTE) of an employee. According to the ATO “annual leave loading will be ordinary time earnings (OTE) unless it is referrable to a lost opportunity to work overtime”. What does that mean? So it’s pretty clear that overtime is not OTE. The idea then is that if the reason for including Annual Leave Loading in the relevant award when originally written was to compensate employees for the missed opportunity to earn overtime whilst on holidays then the loading is not OTE and no super is payable on it. The trouble is that the whole concept of the introduction of leave loading in the 70s was based around exactly that proposition so what else would it be for? According to the ATO however, “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”. That means that if you believe that super should not apply to leave loading you need to go searching for evidence as to why you are paying leave loading in the first place.
According to the ATO that 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 you don’t have that then Annual Leave Loading is OTE and subject to superannuation. Presumably if a staff member does not ever work overtime it would be hard to argue that any leave loading is not OTE.