Superannuation Guarantee owed on annual leave loading

14 March 2019

The ATO has increased its focus on SG with added investigation and enforcement resources, backed by access to real-time compliance information from single touch payroll and superannuation fund reporting. A Bill that would have provided employers with an amnesty against SG penalties for coming forward about shortfalls has stalled in Parliament. Therefore employers increasingly need to be able to demonstrate the SG position they are taking is correct.

One developing issue is SG on annual leave loading. The ATO has announced that employers need to pay SG on annual leave loading unless the industrial instrument expressly says that the payment is for the loss of opportunity to work overtime (or other non-ordinary hours) during the period of leave, or there is other written evidence of a mutual understanding by the parties to that same effect. Typically a modern industrial instrument will not spell out the reason for 17.5% annual leave loading, and other written evidence to persuade the ATO will probably not exist. If the necessary terms or written evidence is not currently in place, then the ATO expects that to be rectified as soon as practicable, or for the employer to start paying SG.

In terms of past SG compliance, the ATO says it will not devote resources to scrutinise the purpose of the loading where the employer had a reasonable basis to conclude it was for the loss of opportunity to work overtime, provided there is no contrary evidence about the purpose that is less than 5 years old. However, questions may remain about whether the protection that this compliance approach confers for the past extends to:

  • annual leave loading calculated by reference to the shift loading the employee would normally receive had he or she been working;
  • employees who are paid an aggregated annualised salary without separate payment for overtime worked; and
  • employees who do not or cannot in practice work any paid overtime.

It should be noted that the ATO used to accept in former ruling SGR 94/4 that SG never applied to annual leave loading because it was not a payment for ordinary hours or any other hours worked. The ATO first altered its view in the replacement ruling, SGR 2009/2, by saying annual leave loading was not subject to SG if it was demonstrably referable to a loss of opportunity to work overtime. Old industrial decisions did indeed show that loss of opportunity to work overtime was a purpose of the loading, however the ATO is now saying they do not accept those historical opinions as sufficiently conclusive of the ongoing purpose today.

SG payments are next due on 28 April.

Please contact us if you would like to know more.



Graham Warren

Special Counsel


Cameron Blackwood