Traditionally annual leave loading (leave loading) was paid to compensate employees that regularly worked overtime for their loss of opportunity whilst being on annual leave.
As leave loading replaced the payment of overtime wages, super was not payable.
However, today, leave loading is not just paid to employees who work regular overtime. An organisation can choose to pay leave loading to their workforce, regardless of whether their employees are working overtime or not.
To address the changed circumstances around leave loading, earlier this year, the ATO issued a note clarifying the super treatment of these payments.
In March, the ATO announced going forward, leave loading will be superable if it is considered to be ordinary time earnings (OTE).
When is leave loading considered OTE?
Leave loading payments are considered OTE if there is no evidence the employer is paying the leave loading to its employees for the loss of overtime work.
These leave loading payments are superable.
When is leave loading considered non-superable?
Leave loading payments that are considered ‘demonstrably referable’ to a lost opportunity to work overtime will remain non-superable.
An employer must be able to prove leave loading payments are made to replace this lost opportunity to work.
Examples of evidence;
- An explicit explanation for the leave loading payment is included in the modern award or registered agreement
- An explicit explanation for the leave loading payment is included in other written evidence, i.e. documented policy
For further information on the super treatment of leave loading, visit the ATO website.