Termination payments and super¶

When an employee leaves, their final pay often has several parts — unused leave, maybe a redundancy amount, and sometimes a payment for a notice period they did not have to work. These parts are not all treated the same way for super.

The key question is always the same one you ask for any pay item: is it ordinary time earnings (OTE)? If it is, super applies. If it is not, super does not apply. This is a common area to get wrong, so it is worth taking slowly.

In one line

Unused leave and redundancy amounts are generally not OTE (no super), but a payment in lieu of notice is generally OTE (super applies).

Why this matters¶

Final pays are easy to rush, and the amounts can be large. If you pay super on the wrong part, you either overpay, or you underpay and create a shortfall you later have to fix. Knowing which parts attract super keeps the final pay correct the first time.

What you will learn¶

Which termination payments are not ordinary time earnings
Why a payment in lieu of notice is generally OTE
How to avoid the common error of treating these amounts the same way

Understanding the concept¶

Super is worked out on ordinary time earnings (OTE) — broadly, what an employee earns for their ordinary hours of work. So for each part of a final pay, you check whether it is OTE.

The ATO's guidance treats these termination amounts as generally not OTE, so super generally does not apply to them:

Unused annual leave paid out on termination.
Unused long service leave paid out on termination.
Redundancy payments, including a genuine redundancy amount.

The reason is that these are payments made because the employment is ending, not payments for ordinary hours of work.

One common part of a final pay is different. A payment in lieu of notice — money paid to cover a notice period the employee did not actually work — is generally OTE, so super applies. The ATO explains that this payment stands in for the salary or wages the employee would have earned during the notice period, so it is treated as being in respect of ordinary hours of work.

For accountants & bookkeepers

The dividing line is whether the amount is 'salary or wages' paid in respect of ordinary hours. Unused annual leave and unused long service leave paid on termination sit on the ATO's list of payments that are not OTE, as do genuine redundancy and other bona fide redundancy amounts. A payment in lieu of notice sits on the OTE list. Under Payday Super, the same logic carries into qualifying earnings — a payment in lieu of notice is qualifying earnings, while the unused-leave and redundancy components are not. Always classify each line of the final pay separately rather than treating the lump sum as one.

Example¶

Alex is leaving a business. The final pay has three parts: a payout of unused annual leave, a genuine redundancy amount, and four weeks of pay in lieu of notice because the employer asked Alex not to work out the notice period.

The employer works super out on the pay in lieu of notice only, because that part is OTE. The unused annual leave and the genuine redundancy amount are generally not OTE, so no super is paid on them. Splitting the final pay into its parts is what gets the super right.

Common mistakes¶

Paying super on unused annual leave or unused long service leave paid on termination — these are generally not OTE.
Paying super on a redundancy or genuine redundancy amount — generally not OTE.
Skipping super on a payment in lieu of notice — this one generally is OTE.
Treating the whole final pay as a single lump sum instead of checking each part.

How this works in myaccountant¶

In the app — when you build a final pay, myaccountant classifies each pay item as super-attracting or not, so it works super out only on the parts that are OTE. That means a payment in lieu of notice is picked up for super, while unused-leave and redundancy amounts are not, without you having to remember the rule for each line.

Key points¶

Super is worked out on ordinary time earnings (OTE), part by part.
Unused annual leave paid on termination is generally not OTE — no super.
Unused long service leave paid on termination is generally not OTE — no super.
Redundancy and genuine redundancy amounts are generally not OTE — no super.
A payment in lieu of notice is generally OTE — super applies.
Always split a final pay into its parts before working out super.

Learn next¶

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

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