The ATO recently confirmed its approach to when they will expect to see annual leave loading included as part of ordinary time earnings (OTE) for super guarantee purposes (SGC).

In accordance with Superannuation Guarantee Ruling SGR 2009/2, the ATO have confirmed that leave loading will be considered OTE and therefore form part of the 9.5% SGC calculation unless it has arisen due to the lost opportunity to work overtime.

By way of example, if an employee works regular overtime and then when placed on annual leave receives a payment of leave loading to help cover the loss of overtime pay whilst on leave, then this is not considered OTE as the overtime itself whilst the employee is working is not OTE.  However, if an employee does not work overtime but whilst on leave receives leave loading then this is considered OTE because the loading is not compensating for any non OTE income paid whilst the employee is on leave.

The ATO have advised that they will not apply compliance resources to check historical quarters where employers have self- assessed and have a reasonable position as to whether annual leave loading was OTE, however, it will be an area that they will be reviewing into the future.

As an employer, what should you do;

  • Check your relevant Awards and Agreements and clarify how leave loading applies to OTE for your employees and ensure you have documented evidence regarding the treatment
  • If you should be including leave loading in OTE for your employees and you haven’t been, ensure you make the change as soon as possible
  • If you need further information or assistance, contact your Davidsons team member or email us at info@davidsons.com.au and request a consult with one of our payroll specialists

For a quick snapshot of what is included in OTE, go to the following ATO link to view an easy to read checklist.

https://www.ato.gov.au/Business/Super-for-employers/How-much-to-pay/checklist–salary-or-wages-and-ordinary-time-earnings/#leave

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.