Technical Update:

Is your organisation contributing superannuation guarantee on leave loading for staff?

08 April 2019

The Australian Taxation Office (ATO) has recently updated its website regarding the application of the superannuation guarantee to annual leave loading. The ATO has reaffirmed its position in Superannuation Guarantee Ruling SGR 2009/2, that superannuation guarantee contributions applies to annual leave loading, unless it is clearly referrable to a lost opportunity to work overtime. 

The ATO has acknowledged that there has been uncertainty around this topic. As such they have announced that they will not conduct audits in relation to prior periods if:

  • The employer took a reasonable position that the leave loading related to a lost opportunity to work overtime; and
  • There is no documentary evidence which refutes this reasonable position.

It is still the ATO’s expectation that for future periods employers who contend that any part of the annual leave loading is not subject to superannuation guarantee, they should obtain clear documentary evidence that the leave loading is paid to compensate for the loss of the ability to work overtime. If this is not the case, the employer will need to commence contributing the superannuation guarantee on future payments of annual leave loading.

BDO Comment

This means that employers who have not in the past contributed the superannuation guarantee on leave loading will need to ensure they check there is no historical documents refuting their position. Further, they will need to obtain sufficient evidence to demonstrate that the entitlement to leave loading was referrable to a notional loss of opportunity to work overtime for future payments. It is not sufficient evidence to rely on the relevant Award or the Employment contract, where it does not state the reason for the annual leave loading entitlement (i.e. it does not specify it is for lost opportunity to work overtime). 

Additionally, in the clearest cases (e.g. where a staff member has no entitlement to be paid overtime, but is still paid leave loading) the superannuation guarantee will apply to both past and future annual leave loading paid. In the event that it is considered that a superannuation guarantee shortfall has occurred, then a voluntary disclosure will be required to correct this, and the superannuation guarantee charge applies. The superannuation guarantee charge is made up of three components, being the shortfall, an interest component (generally 10% p.a. from the beginning of the relevant quarter to the date paid), and an administration component (being $20 per employee with a shortfall per quarter).

BDO Recommendation

We recommend that you review your payroll procedures (including your payroll software settings), to determine whether superannuation guarantee contributions have been applied to leave loading. If this has not been applied, then we recommend that you consider your circumstances further, and whether you are able to obtain written evidence to support this position.

Want to know more? Please don’t hesitate to contact us, and we would be pleased to consider this further for your organisation.