Superannuation on Unused Annual Leave / Long Service Leave

Loranje on 11/04/2022 - 23:16

Hi everyone, long time member, posted a few deals in my time but this is my first forum post.

I recently resigned from my job, where I had a combined total of 14 weeks annual and long service leave. To my surprise, I was paid my usual take home amount but no superannuation, which would have been a couple grand.

From what I can see from the ATO, Fair Work NSW and my super fund’s website, superannuation is NOT paid on top of unused annual or long service leave.

While the reason for this is beyond me, it would have been fine, if the funds that would have been paid to my super fund were paid directly to me instead, which was not the case.

As my salary package was inclusive of super, which was not paid on resignation, my employer has essentially received a 9.09% discount on my salary.

If that’s the case, wouldn’t everyone in this scenario just go on leave and then resign when leave entitlements were exhausted? In that case, after 14 weeks leave, I would have accrued at least another week.

Fully appreciate that not everyone is fortunate enough to be continuously employed through the pandemic, let alone for 11 years continuously.

Also want to add that I left my employer on good terms and there’s never been an issue with pay. For that reason, I hate to think they’ve paid me by the book, in which case, I can’t hold it against them.

If anyone can share their knowledge on this area in the comments below, it’d be greatly appreciated. Otherwise I’ve included a poll below. Let me know your thoughts!

Poll Options expired

  • 8
    Superannuation should be paid to super fund
  • 0
    Superannuation should be paid to employee
  • 19
    Superannuation should not be paid
Education & Work Superannuation

Comments

  • Trying2SaveABuck on 11/04/2022 - 23:21
    +3

    I agree it should be paid out with your entitlements (into your super fund) but for some reason it isnt.

    You are correct in the sense you are better off using the leave and quiting before you return to work as they have to pay you your super whilst u 'take' your leave

    Sounds like you missed out in a few grand in super which sucks but I guess it is a lesson learnt

    • oranje on 11/04/2022 - 23:36

      Agree with you here.

      My employer had a policy of no more than 4 weeks of leave at a time. In that case, my employer gets to benefit by not allowing me to take my full benefits or not paying me my full salary.

      Definitely burned here

      • doweyy on 11/04/2022 - 23:57
        +9

        You definitely haven't been "burned", although it may seem that way.

        In your case, the employer has done everything correctly, they are not allowed to pay superannuation guarantee on unused annual leave / long service leave payouts as it does not fall under the definition of Ordinary Time Earnings per the ATO. Superannuation Guarantee is only ever payable on OTE (being your normal salaried wages), you get super on AL taken while employed as it supplements your ordinary time you would have otherwise earned.

        If the company enforces a 4-week maximum leave at any time, that doesn't make a difference. In your 11 years of employment, you could have taken your 4 weeks per year (technically) and had super paid on it all. But you didn't, and instead have left a large portion to the payout date which doesn't fall under OTE and therefore won't earn any super.

        Unfortunate that you didn't realise this before leaving, but that's just how it goes.

        • Baa on 12/04/2022 - 11:33

          The only answer you need.

          You could try to trick the system by having taken your 14 weeks of leave so it was paid and superable, however, if you started another job straight away you risk being undertaxed at end of the year as your leave payout was not taxed marginally.

  • MS Paint on 11/04/2022 - 23:23
    +2

    funds that would have been paid to my super fund were paid directly to me instead

    Does this happen in any employment scenario? I doubt very much.

    From what I can see from the ATO, Fair Work NSW and my super fund’s website, superannuation is NOT paid on top of unused annual or long service leave.

    Thanks for researching the answer.

    • oranje on 11/04/2022 - 23:44

      Surely the logical thing to do is to pay all leave entitlements on resignation as if that employee continued to be employed until the end of their leave entitlements.

      If I give notice without taking leave or I go on leave and provide notice without returning, either way I’m not coming back yet superannuation is not paid? Sounds cooked to me

      • SF3 on 12/04/2022 - 00:12

        logical thing to do

        But that is what they did, by the book/logically…

      • Hardlyworkin on 12/04/2022 - 06:49
        +3

        Logic doesn't trump the relevant laws. Super is paid on OTE, not annual and long service leave on termination.

        Your salary is based on payment for 52 weeks per working year. The leave payments are after your employment ends so they are additional to your salary. For example your yearly salary includes leave within it, it is not 52 weeks plus 4 weeks leave. Super is paid on 52 weeks.

        The logic here is to take leave during employment. Leave is intended for employees to take a break from work, not for extra money.

        • oranje on 12/04/2022 - 07:18

          Thanks for that - I can kind of see your point around super being paid over the course of the year and therefore should not be paid on unused amounts.

          Do you think OTE is different depending on whether your contract states that your salary is inclusive or exclusive of superannuation?

          I think not paying superannuation on unused leave makes sense, if the salary is exclusive of super but if your employer is taking a portion of your salary to pay superannuation and it is not required to pay superannuation on resignation, why is an employer not required to pay the full salary amount?

          • Hardlyworkin on 12/04/2022 - 07:32
            +1

            @oranje: Whereas you could always get advice from a professional, your contract won't make a difference to the ATO. I'm very doubtful that you would have any legal legal leg to stand on.

            A salary, even when appearing to include super is always seperated on a pay slip. You still get paid wages plus super, your employer has just added them together on a contract or job ad to give the appearance of a higher salary.

            • oranje on 12/04/2022 - 09:26

              @Hardlyworkin: I see your point, however I remember when the super contributions went from 9.5% to 10%, there was a big distinction between contracts, where the salary was inclusive or exclusive of super.

              People with ‘exclusive’ contracts were essentially getting a pay increase, whereas those with ‘inclusive’ contracts had a smaller take home salary.

              This is why I think the question of superannuation on unused leave might hinge on that distinction

      • Seraphin7 on 12/04/2022 - 08:45

        What might be logical to you, which is based on a set of assumptions or principles, will not be logical to someone else based on a different set of assumptions of principles.

        As an example, your logic is based on your "right" to the superannuation payments because under a different scenario you would have been paid them. The alternative logic is you are not employed, superannuation is attached to your employment and therefore you miss out.

        Either way, the law is the law. What you, or I, or anyone else "thinks" about the parameters of the law is irrelevant to your question. By all means, there is a logical argument that superannuation be paid in situations such as this, but that is a separate question to whether or not you are entitled to it in the present moment.

        • oranje on 12/04/2022 - 09:01

          Please disregard my comment on logic as you are right and I have already said that if my employer has paid me accordingly, I would not bring it up with them

          I understand that the law is that superannuation not payable on unused leave so the question is how is that leave calculated.

          My total salary includes a 10% superannuation contribution so if that contribution is not required, I would like to see a clear authority that the employer is entitled to keep that amount.

          My point is a superannuation contribution might not be required but if my salary is X amount per year, then I expect to receive leave paid out at X divided by 52 multiplied by the number of weeks owed

          • Seraphin7 on 12/04/2022 - 09:14
            +1

            @oranje: The authority is provided above in what the ATO considers to be OTE and therefore what attracts (and what doesn't) superannuation payments.

            Your salary might very well be quoted as $x per year inclusive of superannuation (as mine is), but what you ultimately cannot avoid is that approximately 90% of $x is the relevant number here. When you are being paid that as OTE, you get super … when you are not (i.e. in your very circumstance), you don't.

            It's not that your employer is entitled to keep the amount of superannuation. It is they are not required to pay superannuation on the earnings in question, very specifically from the ATO that "Termination payments – unused annual leave, long service leave or sick leave" are not considered OTE.

            • oranje on 12/04/2022 - 09:34

              @Seraphin7: Very valid points but let me put it another way. If superannuation obligations did not exist at all, your OTE would be 100% of your salary.

              Does the fact that superannuation obligations do not apply at the end of your contract mean that the payout is calculated at 91% because of previous obligations to pay?

              I think the distinction I’m trying to make is not paying super does not mean not paying at all. It goes to the employee as a cash pay out because the contract outlines the salary, which is the same whether or not superannuation contributions are required or not

              • md333 on 12/04/2022 - 12:55

                @oranje: I tend to agree with you. The legislation says the company is not obliged to make Superannuation Guarantee payments (compulsory super) on leave payouts. But if the contract says you will be paid $X including super, seems like you should get $X regardless of how much super is paid, compulsory or not. Probably comes down to the fine print in the contract.
                Very interesting discussion as I am planning to retire in the not too distant future and have an inclusive of super salary package. Now feeling more inclined to use up my leave rather than cash it in.

                • oranje on 13/04/2022 - 13:25

                  @md333: In your scenario, I would consider going on leave, when you are ready to retire as you’ll continue to accumulate, while on leave as well

                  • md333 on 13/04/2022 - 14:48

                    @oranje: Either that or just keep taking leave more and more often until I run out or can't be bothered going back to work after.

    • bobbified on 12/04/2022 - 09:17
      +1

      Does this happen in any employment scenario? I doubt very much.

      There's one scenario - if you're paid more than the max super contribution base each quarter ($60,220, right now), your employer can pay the difference directly to you.

      • MS Paint on 12/04/2022 - 09:21

        That would be a good problem to have.

  • wei13 on 12/04/2022 - 05:43

    Not sure about your case. But I believe unused annual / long service leave paid as a Lump Sum after resignation have different tax treatment and tax concessions. Could be paid as a Lump Sum A, which has a capped tax rate.

    • oranje on 12/04/2022 - 07:12

      I wish! Full tax withheld

    • AndyC1 on 12/04/2022 - 09:11
      +1

      Resignation and redundancy are different. If you are made redundant then it's taxed less and there are tax free thresholds that increase the longer you were there and have a cap as well.

  • mskeggs on 12/04/2022 - 07:28
    +4

    Same thing happened to me. I agree it is illogical, but it is the law.
    Write to your local member urging them to change it.

  • bobbified on 12/04/2022 - 08:59

    As my salary package was inclusive of super, which was not paid on resignation, my employer has essentially received a 9.09% discount on my salary.

    If you work it out with your actual figures, I think you'll find that the portion that would otherwise have been paid to super was simply paid directly to you instead.

    • oranje on 12/04/2022 - 09:04

      That’s what I was hoping but after checking, that wasn’t the case. They simply retained the amount that would have been paid to super

      • bobbified on 12/04/2022 - 09:07

        Did they use different $ rates to calculate your normal pay vs your leave pay? And have you followed your 'normal pay' all the way through?

        Depending on how they show it on your payslip, they sometimes take the portion for super out of your 'normal' pay after the initial calc.

        • oranje on 12/04/2022 - 09:42

          Although my contract states that my salary is inclusive of superannuation, on my payslip there’s an hourly rate (ex super) and then a separate contribution at the bottom for super.

          On my final slip the hourly rate remained unchanged but there was no super contribution.

          Checked against my contracted figures and it’s definitely missing

          • bobbified on 12/04/2022 - 09:53
            +1

            @oranje: Since your rate is 'inclusive', then what isn't going to super should go to you.

            For example, with the SGC rate increase going from 9.5% to 10% from 01/07/2021, the ratio of your total pay should have changed slightly and you would've got less in your pocket and more going to super. It works both ways.

            • oranje on 12/04/2022 - 10:41

              @bobbified: Thank you! My thoughts exactly!

              • bobbified on 12/04/2022 - 13:02

                @oranje: Have you gone back and asked your employer? The alternative would be to go to Fairwork.

                In my last role, my salary was paid on an all-inclusive package as well. When I left employment last year, that's one of the things I checked to make sure was there (and it was). The employer doesn't have to pay super on the annual leave termination portion, so the amount should go to you instead as it's part of your package. The company I left was a large superannuation/HR consultancy firm.

                • oranje on 13/04/2022 - 13:26

                  @bobbified: I haven’t spoken with them yet as I want to make sure I’m right or wrong either way, before I do.

                  Glad to hear there’s one example that works in my favour. Cheers for that

  • cupcake on 12/04/2022 - 09:07
    +1

    Why not just take paid Leave so you can be paid Super then?

    • oranje on 12/04/2022 - 09:40

      Very good point. If I had known, I absolutely would have tried but there are other factors to consider as well.

      Some employers (including my own) would not allow more than 4 weeks to be taken at a time. Not so relevant to annual leave but long service leave is credited in a lump sum.

      I also wanted to start a new job, which would have been unlikely, if I told them to wait 14 weeks.

      Also could not go on leave with previous employer and start my new job as both contracts require you to have permission from your employer to be employed elsewhere at the same time. If they found out, I could have lost all entitlements from my previous employer and my new job as well

      • cupcake on 12/04/2022 - 10:53

        Fair enough. You lose 14 weeks of Super.
        I prefer to take my paid annual leave and paid long service leave each year if I can.
        My boss prefers us to take our paid leave so he won't have to pay us lump sums if we leave for good.

      • lgacb08 on 12/04/2022 - 13:01
        +1

        You get it wrong here, there're a few cases of dispute but under the eye of the law employer cannot sack you and take away any of your usual entitlements even if you do something against the terms of employment. So technically you could work at both jobs whilst on leave and in the unfortunately event that you were found in breach of the agreements the best they could do is fire you but still have to pay out. They can sue for damage but that's a different story.
        Employers have been doing the dirty trick of including super into the package but you shouldn't get sucked into believing in that because the way super is treated differently to usual wages and salaries. It's the same like the old days where flight ticket was advertised exclusively of fees and charges. Just wish fair work has the ball like ACCC. It's an expensive lesson but that's how you live and learn.

      • md333 on 13/04/2022 - 12:04

        There are actually quite strong rules on long service leave to ensure people are able to take it. I think they can only turn it down once.

  • AndyC1 on 12/04/2022 - 09:10
    +1

    The law says no, but you are right in that the employee got to save the super. It sucks.

  • Naiht on 12/04/2022 - 10:41
    +4

    You also miss out on accruing more annual leave while taking the annual leave.

    • bobbified on 12/04/2022 - 10:53

      That's actually not true. While on paid annual leave, annual leave does continue to accrue.

      Annual leave doesn't accrue on unpaid leave though.

      • Naiht on 12/04/2022 - 13:03
        +2

        That's what I meant though. I was saying that since he got paid out on the annual leave instead of taking it, he missed out on accruing even more leave.

        • bobbified on 12/04/2022 - 13:03
          +2

          Ah, my bad.. I read your original comment wrong!

  • tsunamisurfer on 12/04/2022 - 10:47

    From what I can see from the ATO, Fair Work NSW and my super fund’s website, superannuation is NOT paid on top of unused annual or long service leave.

    OP had actually found the answer.

    As my salary package was inclusive of super, which was not paid on resignation, my employer has essentially received a 9.09% discount on my salary.

    Then ignores the official answer to accuse his employer of ripping him off.

    While the reason for this is beyond me, it would have been fine, if the funds that would have been paid to my super fund were paid directly to me instead, which was not the case.

    This is completely stupid, it is a breach of the regulations for employers to pay superannuation money to the individual's bank account. That money is to be preserved and invested until retirement.

    • oranje on 12/04/2022 - 12:05

      Pretty sure I indicated that my employer is in the right and that in that case I wouldn’t hold it against them but ok.

      What would stupid is to claim that paying someone their full salary, when no superannuation contribution is required, is a breach of regulation to pay superannuation

  • Donaldhump on 12/04/2022 - 10:49
    +2

    if you have no job to goto, take 4 weeks leave return for a month, repeat x 3/4 times, then quit.

    anyway makes no sense to not have to pay it out, same deal with why isnt super out in ur acc like pay every fortnight or so.

    one place i worked a few years back when this was a loophole, reduced their SG on a reduced amount after i salary sacrificed. I complained, they said it was legal, i said it was theft and pathetic, and quit.

    • VVamo on 12/04/2022 - 11:21

      Good call that's a shitty employer.

      F.Y.I. you can now make what are called deductible personal superannuation contributions.
      They are effectively exactly the same as salary sacrificing extra in super.
      But your employer is not in any way involved or even informed.

      • Donaldhump on 12/04/2022 - 11:47

        yeh i normally do that, but i Sacrificed from pay to forward roll it into the next FY, i.e do it June, touches super in July

  • Shadowsfury on 12/04/2022 - 10:51
    +1

    I had similar issue last year - just how things fall. Got 13 weeks of leave paid out - would have preferred to use it up post-pandemic but also wanted out of my previous role/company.

    In reality though only took a couple of months to have made back what I lost out on through the higher salary at new place.

  • brad1-8tsi on 12/04/2022 - 16:28

    I resigned/retired in January with 6 months of LSL & AL. No super paid. It was a strategic mistake on my part that cost me about $6k in superannuation contributions but I just needed to cut ties with a bad situation. Worth every penny.

    • cupcake on 14/04/2022 - 13:42

      So you got paid out all your leave entitlements at once when you left instead of going on paid leave for six months.
      Lesson learned. However, if it is a bad situation, sometimes it is better just to resign from a toxic work place.
      An old co worker of mine left two months before her 10 years long service leave came. She was over it and lost out on 3 month's paid long service leave!

      • brad1-8tsi on 15/04/2022 - 17:49

        That's the short version. The detailed version is a bit more involved.

  • Transient on 12/04/2022 - 16:59

    Thanks for bringing this to our attention OP. Something to keep in mind when getting close to retiring!

    • cupcake on 13/04/2022 - 16:26
      +1

      I had a co-worker in my old job resign, and then ring in sick every day after. No one could say anything because she was pregnant. Use up all her sick leave too!

      • Transient on 13/04/2022 - 22:18

        Good move! At my place we can also take it as carer's leave!

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