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If you’ve been with your employer for an extended period of time, you might wonder if they’re required to pay superannuation on long-service leave. The short answer is, yes, but there is an exception. Understanding how super applies to long-service payments is an important step to managing your super effectively.
It is important to note, however, that some employers, including the Queensland Government, have different contribution arrangements and, in those cases, employer obligations may differ from those outlined here.
Long-service leave is a paid entitlement rewarding employees who have stayed with one employer for a significant period of time – a minimum of seven or 10 years, depending on where in Australia you live and work or as agreed in your employment contract.
States and territories have different entitlements1, with significant variations in terms of the length of uninterrupted service required to be eligible for long service, and the amount of leave that may be granted.
There are also some circumstances, and certain jobs, in which you can still be eligible for long-service leave even if your employment is interrupted. If you are unsure of your entitlements, check with your employer or state government for clarification.2
Under the terms of Australia’s Superannuation Guarantee, employers currently must pay a minimum 9.5% of an eligible employee’s ordinary time earnings (OTE) into their nominated superannuation account. They can choose to pay more if they wish.
OTE means the money you earn during normal work hours. That includes annual leave and leave loading, shift allowances, back pay, commissions, bonuses, and long-service leave.3
However, many Australians retire, or move on from a role, with an accumulation of long-service leave, which then needs to be cashed out. This is where the exception applies: unused long-service leave cashed out upon termination of employment is not considered to be part of OTE, and employers are not required to pay super on that amount.
If you do want to take your long service leave as a lump sum but would also like to use some of that money to boost your superannuation account balance, there are a number of ways to achieve this.
Voluntary contributions: You could contribute some of the money to your super in the form of a voluntary contribution, which can be made at any time during the financial year. In doing so, it is important to be aware that there are some limits to how much you can contribute to your super fund each year (contribution caps). If you go above these limits, you may pay extra tax.
Top up your spouse’s super: You could also use it to top up your spouse’s super.
Other strategies for growing your super can be found here.
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* You can find out more about financial advice options at qsuper.qld.gov.au/advice or by calling us on 1300 360 750. QInvest Limited (ABN 35 063 511 580, AFSL 238274) is a separate legal entity responsible for the financial services it provides. Eligibility conditions apply. Refer to the Financial Services Guide (pdf) for more information.
1. Long service leave, https://www.fairwork.gov.au/leave/long-service-leave, accessed 13 November 2020.
2. Long service leave, https://www.fairwork.gov.au/leave/long-service-leave, accessed 13 November 2020.
3. Checklist: Salary or wages and ordinary time earnings, https://www.ato.gov.au/Business/Super-for-employers/How-much-to-pay/Checklist--salary-or-wages-and-ordinary-time-earnings/, accessed 13 November 2020.
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