Answer
The ATO has clarified its position on whether annual leave loading is to be considered ordinary time earnings (OTE), and thus applicable to super guarantee calculations. This categorisation of leave loading as OTE has traditionally been a grey area, where OTE has widely been understood to not include annual leave loading amounts. This clarification of the SGR 2009/2 Super Guarantee Ruling may change what super employees who receive annual leave loading are entitled to.
Why Do Your Staff Get Paid Annual Leave Loading?
Annual leave loading is NOT considered OTE (and NOT to be included within super calculations) whenever it can be demonstrated that it was paid for a notional loss of opportunity to work overtime.
In short, if the loading is paid to replace a missed opportunity at working overtime - it is not OTE (not included in super calculations).
If the loading is applied for some other reason, or you are not able to reasonably show that it makes up for overtime lost - it is OTE (included in super calculations).
How Do I Know Whether Annual Leave Loading Is Paid For Lost Overtime Opportunity?
- Award or agreement clauses
Some awards, agreements and industries may make this leave loading reasoning apparent, while others may remain silent on why leave loading is paid. In the latter case you should self-assess. For information on awards you should contact Fair Work Australia.
- Self-assess whether the annual leave loading is or is not OTE
We have introduced a tool to assist you self asses whether or not super on leave loading applies based on an employee's frequency of overtime, found under Tools >> Set Include Leave Loading In Super. This gives you a way to quickly determine - absent any award or agreement evidence mentioned above - whether an employee works overtime on a regular basis.
Past correspondence between the ATO and ICB indicates this is a reasonable way to approach the issue:
"...if an employee is demonstrably working overtime on a permanent regular basis, any annual leave loading that is applicable to that overtime is not considered OTE and therefore no SGC is payable."
In each employee's situation is up to employers to decide, and in some cases a backpayment of super for affected employees may be applicable.
The ATO states that:
"We acknowledge the uncertainty around this topic, and the evidentiary difficulties in identifying the purpose for annual leave loading entitlements. For this reason, we won't apply compliance resources to scrutinise why annual leave loading was paid in previous quarters, where:
- the employer self-assessed that the annual leave loading was not OTE, with the reasonable position that their annual leave loading was for a notional loss of opportunity to work overtime
- there is no evidence less than five years old (the statutory period employers are expected to keep records relating to their SG affairs) that suggests the entitlement was for something other than overtime."
Lightning Payroll was released in July 2012 and cannot provide information prior to this.