Annual leave and superannuation
Annual leave and superannuation are important parts of your employment package. In isolation, these benefits may be familiar concepts, however things get trickier when trying to understand how they affect each other.
Superannuation plays a pivotal role in ensuring a comfortable and secure retirement. By understanding how super applies to your income, if you get paid super on annual leave, and superannuation on unused annual leave, you’ll have a better idea of how your employer contributions accrue.
In this article, we cover questions around super and annual leave, including whether super is paid on annual leave and the types of leave that does require employer contributions to super.
What is superannuation on annual leave?
As a general rule, you can expect your super to still be paid when you’re taking regular annual leave. Annual leave pay falls under the category of 'ordinary time earnings' (OTE). OTE includes most of the payments you receive for your regular hours of work, including annual leave, sick leave and other benefits.
Is super paid on annual leave?
When you take annual leave, you’re being paid the same as you would if you were at work – paid annual leave days are treated like paid days when it comes to employer super payments. This means you receive the usual superannuation contributions while you’re taking paid leave from work.
But is super paid on unused annual leave if your employment contract is terminated? Generally, no it isn’t paid, even if the termination is with notice. Payouts on termination are considered ‘termination payments’ and not ordinary time earnings (OTE).
However, some Enterprise Bargaining Agreements (EBAs) go against this general rule. Certain EBAs may specify that superannuation contributions are made on termination payouts, which is why it is always best to check with your employer or your employment contract.
What are ordinary time earnings (OTE)?
As explained above, ordinary time earnings (OTE) are what you usually earn, and are the starting point for how superannuation is calculated in Australia. Here’s a breakdown of what is typically considered OTE:
Base salary or wages: the regular earnings an employee receives for their standard hours of work.
Allowances: most allowances are included, but this excludes any overtime payments.
Bonus payments: this only covers bonuses linked to an employee’s ordinary hours of work, not those based on performance or achievements.
Since OTE includes payments for regular hours of work, annual leave payments also form part of OTE. This means that when you take annual leave, your superannuation contributions continue as if you were at work.
Why is superannuation important?
Superannuation helps you financially after you retire. It’s a compulsory saving program where money is put aside by your employer/s over the course of your working life. The savings grow over time through investment returns.
Employers are legally required to contribute a fixed percentage of an employee’s ordinary time earnings (OTE) into their chosen superannuation fund. The Superannuation Guarantee is the minimum amount an employer must contribute, and in 2024 is set at a rate of 11% of OTE (set to increase to 12% by 2025).
Accumulating superannuation offers several benefits:
It provides a financial cushion that supplements the government-provided Age Pension, currently available to people 67 years and older.
Concessional (before tax) contributions to your super are taxed at a lower rate of 15%.
Even small, regular contributions can grow into a significant sum over the decades that you work.
Voluntary superannuation contributions you have made, plus any interest on them, can be withdrawn as part of the First Home Super Saver Scheme to help you buy a house
What types of leave are included in super?
Different types of leave have different rules regarding superannuation contributions. Here are the most common.
Annual Leave
Annual leave refers to the paid time off from work that employees are entitled to each year. Employers must make superannuation contributions based on the ordinary time earnings that an employee earns at work. This means that super is paid on annual leave taken during time of active employment.
Sick Leave
Sick leave allows employees to take time off to recover from an illness or injury. Similar to annual leave, superannuation contributions are made on paid sick leave days, as these are also considered ordinary time earnings.
Parental Leave
Parental leave includes both maternity and paternity leave, which is available for parents to care for their newborn or newly adopted children. Superannuation contributions are not typically made on parental leave, as this doesn’t fall under ordinary time earnings.
Ancillary leave
Ancillary leave encompasses other types of leave, including bereavement leave, jury duty, and more. Superannuation contributions for these types of leave are not generally made.
Normal vs on termination
Superannuation contributions are generally made on leave payments when taken under normal circumstances during employment. However, when leave is paid out when you resign or are terminated from a job (including unused annual leave), these payments typically do not include superannuation contributions.
Super on taken annual leave
To understand superannuation contributions, it’s important to look at your annual leave payments. Typically, superannuation is paid for annual leave as it’s considered part of your ordinary time earnings (OTE). This setup ensures superannuation contributions continue even while you’re away from work.
Calculating super on annual leave pay
To show how superannuation contributions are calculated on annual leave pay, it helps to go over some examples based on the 2024 superannuation rate (11%).
Example 1: Monthly salary calculation
Details:
Base salary: $60,000 per year
Super guarantee rate: 11%
Annual leave days taken: 10 days (typical working month has 20 working days)
Calculation of leave pay:
Daily rate = $60,000 / 365 = $164.38 per day
Leave pay for 10 days = 10 x $164.38 = $1,643.80
Calculation of super contribution:
Super contribution = $1,643.80 x 11% = $180.82
In this example, the employer would contribute $180.82 to the employee’s superannuation fund for the 10 days of annual leave taken.
Example 2: Weekly salary calculation
Details:
Base salary: $70,000 per year
Super guarantee rate: 11%
Annual leave days taken: 5 days (typical working week is 5 days)
Calculation of leave pay:
Daily rate = $70,000 / 365 = $191.78 per day
Leave pay for 5 days = 5 x $191.78 = $958.90
Calculation of super contribution:
Super contribution = $958.90 x 11% = $105.48
In this second example, the employer would contribute $105.48 to the employee’s superannuation fund for the five days of annual leave taken.
Super on unused annual leave payouts (during employment)
While superannuation contributions are typically made on annual leave, unused annual leave super payouts will depend on your employer.
Is super payable on unused annual leave?
Do you pay super on an annual leave payout? Superannuation is calculated on ordinary time earnings (OTE) and unused annual leave payouts are often considered the same as termination payments. Since these payouts are not made for ordinary working hours, but rather as a settlement for not taking leave, they don’t fall under the umbrella of OTE. Is super paid on unused annual leave? Generally no, but this may differ between workplaces.
While super is typically paid on regular annual leave pay (as it falls under ordinary time earnings), it’s generally not paid on unused annual leave payouts during employment or upon termination. Understanding these distinctions is important for managing your expectations around superannuation benefits.
FAQs
Do you pay superannuation on an annual leave payout?
No, superannuation is generally not paid on annual leave payouts. This type of payout is considered a termination payment and not part of ordinary time earnings (OTE), which are the earnings super contributions are typically based on.
Is annual leave loading a superannuation guarantee?
No, annual leave loading is not generally a superannuation guarantee. Although part of the annual leave payment, leave loading is considered separate from ordinary time earnings, and super contributions are not made.
Is superannuation paid on unpaid leave?
No, superannuation is not paid on unpaid leave. Since there are no earnings from unpaid leave, there are no contributions to be made to a super fund during this time.
Is superannuation paid on sick leave?
Yes, superannuation is paid on sick leave. Paid sick leave is considered ordinary time earnings, which means employers are required to make super contributions.
Is superannuation paid on termination payments?
Superannuation is generally not paid on termination payments. This includes payments such as unused annual leave or severance pay, which are not considered ordinary time earnings.
How is superannuation paid out?
While you don’t receive super on annual leave payouts, superannuation is paid out as either a lump sum or an income stream (pension) when you retire or meet another condition of release.
What is superannuation paid on?
Superannuation is paid on ordinary time earnings, which include most types of income paid for ordinary hours of work, such as wages, salaries, commissions, certain bonuses, and paid leave taken during employment (like sick leave and regular annual leave).
Is superannuation paid by an employee?
Yes, employees can make their own voluntary contributions to their superannuation, in addition to the mandatory contributions made by their employer. These can be before-tax (concessional) or after-tax (non-concessional) contributions.
How much superannuation should I have?
The amount of superannuation you should have depends on:
Your income
How many years you have worked in Australia
How much you have voluntarily contributed
The superannuation rate provided by your employer
If you’re wondering how much superannuation you should save before retirement, consult with a financial advisor to determine the right target for your circumstances. Generally it’s the annual salary you’d like multiplied by the amount of retirement years you have planned, less any other income.
Is superannuation payable on allowances?
Superannuation is payable on most allowances, but not all. It depends on whether the allowance forms part of an employee’s ordinary time earnings. Allowances that compensate for particular expenses (like travel allowances) generally do not attract super contributions.
