Allowances and super¶

Allowances are one of the trickier parts of working out super. Some allowances attract super and some do not. The key is what the allowance is really for — is it extra pay, or is it money to cover a cost?

In one line

Many allowances are ordinary time earnings, so super applies. Expense allowances and reimbursements that cover expected or actual costs are generally not.

Why this matters¶

If you treat every allowance the same way, you will get some wrong. Missing super on an allowance that should attract it leaves the employee short. Adding super to a pure expense allowance overpays. Understanding the distinction keeps each allowance correct.

What you will learn¶

Why many allowances count as ordinary time earnings
What an expense allowance and a reimbursement are
Why expense allowances and reimbursements generally do not attract super

Understanding the concept¶

Super is worked out on an employee's ordinary time earnings (OTE) — what you pay them for their ordinary hours of work.

Many allowances are really just extra pay for the work done. The ATO treats an allowance paid as an unconditional extra payment — money the employee can use however they like — as ordinary time earnings. So this kind of allowance attracts super.

Two kinds of allowance are treated differently:

An expense allowance is a set amount paid to cover an expense the employee is expected to have while doing their job. The ATO explains it is paid with the reasonable expectation that the employee will fully spend it in the course of their work. This kind of allowance is generally not ordinary time earnings.
A reimbursement pays the employee back for an actual expense they have already paid for. A reimbursement is also generally not ordinary time earnings.

So the test is not the word "allowance" on the payslip — it is the purpose. Extra pay attracts super. Money to cover an expected or actual cost generally does not.

For accountants & bookkeepers

The ATO describes an allowance as a predetermined amount paid to cover an estimated expense, generally paid whether or not the employee incurs the expected cost. An expense allowance paid with a reasonable expectation it will be fully spent on work costs is not OTE; nor are reimbursements of actual expenses, which are not salary or wages. Where an "allowance" is really unconditional extra remuneration, it is OTE.

Example¶

Tom is a nurse. His pay includes an allowance that is simply an extra amount on top of his ordinary pay, which he can spend however he likes. Because it is an unconditional extra payment for his work, it is ordinary time earnings, so super applies.

Tom also receives an allowance set aside to cover work-related costs he is expected to have while on the job. Because that allowance is paid to cover an expected expense, it is generally not ordinary time earnings, so super does not apply to it. When Tom later pays for a work item himself and his employer pays him back the exact amount, that is a reimbursement — also generally not ordinary time earnings.

Common mistakes¶

Deciding super by the label "allowance" instead of the purpose of the payment.
Leaving super off an allowance that is really unconditional extra pay.
Adding super to a reimbursement of an actual expense — reimbursements are generally not ordinary time earnings.

How this works in myaccountant¶

In the app — you can mark each pay item, including an allowance, as super-attracting or not. When you add the allowance to a pay run, myaccountant uses that setting to decide whether super is worked out on it, so an extra-pay allowance can attract super while an expense allowance or reimbursement does not.

Key points¶

Super is worked out on ordinary time earnings.
An allowance that is unconditional extra pay is generally ordinary time earnings.
An expense allowance covers an expected cost and is generally not ordinary time earnings.
A reimbursement pays back an actual expense and is generally not ordinary time earnings.
The purpose of the payment decides it, not the word "allowance".
If in doubt, check whether the money is extra pay or covers a cost.

Learn next¶

General information only — not tax, super or financial advice.

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