Is the super guarantee paid on termination payments?

Q&A

Is the super guarantee paid on termination payments?

Do you have to pay the superannuation guarantee on termination payments? Paul Munro explains.

Do we have to pay the superannuation guarantee on termination payments? 
 
This question was recently sent to our Ask an Expert service.
 
Q A manager's position is being made redundant this month and the employee will be paid as per our redundancy policy plus one month's pay in lieu of notice.

We're unsure about our liability to pay the 9.5 per cent super guarantee (SG) on the termination pay. The payment will include pro rata annual leave, redundancy pay and payment in lieu of notice.

Is the SG payable on all these separate components of the manager’s termination pay?
 
A Whether the SG is payable on a component of the employee’s termination pay is determined by the Fair Work Act 2009 and federal superannuation law. 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 SG 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 SG.
 
Payment in lieu of notice of termination
 
Superannuation law and the Fair Work Act apply in relation to payments made in lieu of notice.
 
Superannuation law
 
According to the ATO’s SGR 2009/2, payments in lieu of notice are included in an employee’s OTE and, consequently, attracts the 9.5 per cent SG charge.
 
Fair Work Act
 
In defining ‘full rate of pay’ under the notice of termination provision of the 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.

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