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Termination pay: what about the super guarantee?

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Termination pay: what about the super guarantee?

Termination pay: what about the super guarantee?

22 September 2020

Is the superannuation guarantee paid on termination payments?

This question was recently sent to our Workplace Advice Line.

Q We recently made a manager’s position redundant. He was paid as per the company’s redundancy policy, plus one month’s pay in lieu of notice. The company did not calculate the superannuation guarantee on any of the termination payments.

The employee says the 9.5 per cent superannuation guarantee should be included in all his termination payments – pro rata annual leave, long service leave, redundancy pay and payment in lieu of notice. Is this correct?

A Generally, the answer is no – although payment in lieu of notice is an exception to this general rule. Whether superannuation guarantee is included on a particular termination payment is determined by the relevant Commonwealth superannuation law and the Fair Work Act.


Annual leave, long service leave, redundancy pay

According to the Australian Taxation Office’s Superannuation Guarantee Ruling SGR 2009/2, lump sum payments on termination such as payment of unused annual leave or long service leave pay do NOT attract the superannuation guarantee because it is not considered to be ordinary time earnings (OTE). The ruling also provides that redundancy pay is NOT considered to be part of an employee’s OTE and, therefore, does not attract the superannuation guarantee.


Payment in lieu of notice

The Fair Work Act (s117(2(b))) requires an employer to provide the relevant period of notice of termination to an employee or the payment of the equivalent in lieu of notice. The amount in lieu is to be paid to the employee, at the full rate of pay, for the hours the employee would have worked had the employment continued until the end of the minimum period of notice.

'Full rate of pay' is defined in the Fair Work Act (s18) to include the following: incentive-based payments and bonuses; loadings; monetary allowances; overtime or penalty rates; any other separately identifiable amounts.


Superannuation contributions

In defining 'full rate of pay' under the notice of termination provision of the Fair Work Act, the Explanatory Memorandum to the Fair Work Bill 2009 states that when an employer elects to pay an employee in lieu of providing notice of termination, this payment must include payments made on behalf of the employee, including superannuation contributions.

In addition, an employer is required to include the payment in lieu of notice in the employee’s ordinary time earnings when calculating the superannuation guarantee. (see Superannuation Guarantee Ruling 2009/2).
 
The bottom line: With the exception of payment in lieu of notice of termination, lump sum payments on termination are not included in an employee’s ordinary time earnings for the purpose of calculating the employer contribution under superannuation guarantee legislation.
 

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