Payments on termination and Super Guarantee

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Payments on termination and Super Guarantee

The inclusion of employer Superannuation Guarantee contributions in payments made on termination of employment can be a tricky issue.

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The inclusion of employer Superannuation Guarantee (SG) contributions in payments made on termination of employment can be a tricky issue.
 
Consideration of this question arose in answer to a question sent to WorkplaceInfo.
 
We will be terminating an employee’s employment soon because the position will no longer exist due to a company rationalisation.
 
We gave the employee a summary of the payments they will receive at that time, including redundancy pay, pro rata annual leave and long service leave pay, and payment in lieu of notice.
 
The employee has queried the ordinary pay on which all of their entitlements have been calculated. In particular, the employee is querying whether the 9% SG should be included when calculating their entitlements.
 
Are employer superannuation contributions included in payments on termination of employment?
 
If the employee is being paid an amount in lieu of notice of termination, the Fair Work Act 2009 considers the SG is to be included in the payment in lieu of notice for the purposes of the National Employment Standards (NES).
 
Notice
 
The Supplementary Explanatory Memorandum to the Fair Work Bill 2008 states that when an employer elects to pay an employee in lieu of providing notice on termination, this payment must include payments made on the employee’s behalf, such as superannuation contributions.
 
Other entitlements
 
In the case of other entitlements payable on termination of employment, the definition of ‘ordinary pay’ may differ depending on the entitlement. For example, under the NES an employee’s ordinary pay is their base rate of pay for the purposes of redundancy pay and annual leave, although this may also differ where the employee’s modern award or enterprise agreement provides a more beneficial definition of ordinary pay.
 
Generally speaking, SG calculations are not included in ordinary pay for the purposes of annual leave or redundancy pay (unless otherwise specified by the applicable industrial instrument).
 
Ordinary pay for long service leave is subject to the definition in the relevant state or territory statute although, generally, SG is not included in ordinary pay for long service leave purposes.
 
It should be noted that the ATO issued a Superannuation Guarantee Ruling (SGR 2009/2), effective from 1 July 2009, in which payment in lieu of notice is included in ordinary time earnings for the purposes of the SG.
 
The same Ruling also states that unused annual leave paid on termination, redundancy pay and lump sum pro rata payments of long service leave on termination are not included in OTE for the purposes of the SG.
 
Source: Paul Munro, IR Consultant.
 
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