Payment in lieu of notice and super guarantee change

Q&A

Payment in lieu of notice and super guarantee change

Superannuation Guarantee contributions are required in relation to ‘ordinary time earnings’; and a noteworthy change has been made to how payment in lieu of notice on termination is treated.

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Superannuation Guarantee contributions are required in relation to ‘ordinary time earnings’; and a noteworthy change has been made to how payment in lieu of notice on termination is treated.
 
A question to WorkplaceInfo points to the issue.
 
We made a senior manager’s position redundant at the beginning of the financial year, on 1 July 2009, in order for the employee to gain a potential taxation advantage.
 
The employee was paid out as per the company’s redundancy policy as well as one month’s pay in lieu of notice.
 
We have recently received some conflicting advice regarding whether the company is liable to pay the 9 per cent superannuation guarantee (SG) on the payment in lieu of notice.
 
The ruling that we thought applied certainly states that ‘payments in lieu of notice’ do not form part of ordinary time earnings (OTE) for the purposes of calculating the employer contribution under the SG.
 
Under what circumstances would the 9 per cent SG be required to be paid by the employer?
 
The date of termination is the critical factor in this case. The Australian Tax Office (ATO) has issued a new SG Ruling (SGR 2009/2) that now includes ‘payments in lieu of notice’ as part of OTE for the purposes of calculating the employer contribution under the SG legislation.
 
The Ruling was issued by the ATO on 13 May 2009, and came into effect on 1 July 2009. If the employee’s employment was terminated on 30 June 2009, the month’s pay in lieu of notice would not attract the SG calculation.
 
Fair Work Act
 
In addition, the employer will be required under the Fair Work Act to include the SG calculation in the payment in lieu of notice as part of the notice of termination provisions of the Fair Work Act. This is because the current provisions (s661 of the Workplace Relations Act 1996) will continue to apply until the NES becomes operative from 1 January 2010.
 
Source: Paul Munro, IR Consultant.
 
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