Super on termination payments¶

When an employee leaves, their final pay can include several different amounts. Some of these attract super and some do not. Getting this wrong is a common payroll error, because it is easy to assume super applies to everything in the final pay.

The rule turns on whether each amount is ordinary time earnings. Most payments made because someone is leaving are not. But one common one, a payment in lieu of notice, usually is.

In one line

Unused leave and genuine redundancy paid on termination usually have no super, but a payment in lieu of notice usually does.

Why this matters¶

The final pay is often the last chance to get super right for that employee. Paying super on amounts that do not attract it wastes money; missing it on a payment in lieu of notice underpays the employee. Knowing which is which keeps the final pay correct.

What you will learn¶

Which termination payments are not ordinary time earnings
Why a payment in lieu of notice usually attracts super
How to apply the rule to a simple example

Understanding the concept¶

Super is worked out on ordinary time earnings (OTE), broadly what you pay an employee for their ordinary hours of work.

The ATO explains that several common termination payments are not ordinary time earnings, so you generally do not pay super on them:

Unused annual leave paid out on termination
Unused long service leave paid out on termination
A genuine redundancy payment

These are amounts paid because the person is leaving, rather than for ordinary hours of work, so they fall outside OTE.

A payment in lieu of notice is different. This is the amount you pay when an employee leaves without working out their notice period. The ATO treats a payment in lieu of notice as ordinary time earnings, so you generally do pay super on it.

The simple way to hold this in your head: pay-outs of unused leave and a genuine redundancy have no super, but a payment in lieu of notice does.

For accountants & bookkeepers

The ATO's list of payments that are ordinary time earnings excludes lump sum payments of unused annual leave and unused long service leave made on termination, and excludes genuine redundancy payments, so super guarantee does not apply to them. A payment in lieu of notice is listed as OTE. The ATO's own guidance uses the example of a redundancy package where only the in-lieu-of-notice component is OTE and attracts super guarantee.

Example¶

Alex is leaving a business. The final pay is made up of a few parts:

Unused annual leave that Alex had built up
Unused long service leave
A payment in lieu of notice because Alex is finishing before the notice period ends

The employer pays super on the payment in lieu of notice, because it is ordinary time earnings. The employer does not pay super on the unused annual leave or the unused long service leave, because those pay-outs are not ordinary time earnings. If part of Alex's final pay was instead a genuine redundancy amount, that would also have no super.

Common mistakes¶

Paying super on unused annual leave or unused long service leave that is paid out at termination — these are not ordinary time earnings.
Paying super on a genuine redundancy amount — it is not ordinary time earnings.
Missing super on a payment in lieu of notice — it is generally ordinary time earnings, so super applies.
Assuming everything in the final pay is treated the same way — different parts are treated differently.

How this works in myaccountant¶

In the app — when you process a final pay in myaccountant, the app works out super on the amounts that are ordinary time earnings, such as a payment in lieu of notice, and correctly excludes super on unused leave paid out at termination. This keeps the final pay run in line with how these payments are meant to be treated.

Key points¶

Unused annual leave paid out on termination is not ordinary time earnings — no super.
Unused long service leave paid out on termination is not OTE — no super.
A genuine redundancy payment is not OTE — no super.
A payment in lieu of notice is generally OTE — super applies.
Different parts of a final pay are treated differently, so check each one.
Paid leave taken while still employed is treated differently (see the on-leave lesson).

Learn next¶

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

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