Change to superannuation treatment of leave loading

In March 2019 the ATO confirmed their position around super on leave loading.

Who’s affected?

Employers who pay annual leave loading will need to carefully review the ATO’s new guidance.

What’s changed 

For almost ten years, leave loading has not been subject to super, with the exception of proving it was applicable as compensation for a loss of overtime or as a specific entitlement linked to an individual’s EA or award.

This recent change has seen the current treatment reversed, with leave loading now treated as ordinary time earnings and subject to superannuation as it is. (Superannuation Guarantee Ruling SGR 2009/2).

What you need to do

Immediately review your situation to understand if you must comply and implement necessary measures: 

1. Determine your employee leave loading entitlements  

2. Assess any historic shortfalls and act (resolve past payments or determine if past action was reasonable based on your understanding of the legislation).

The penalties for getting superannuation wrong can be significant. The ATO has indicated they will have a stronger future focus than retrospective, however, there is still some uncertainty around this. Your need to make a clear decision on how you will pay super on future leave loading, and if you will be making backpays for past payments (and for what periods).

3. Implement a policy and process to mitigate future exposures

4. Confirm if you would like Prosperity to commence paying super on annual leave loading moving forward.

Lastly for more detail, click here to read the ATO’s correspondence on this  issue.

To discuss your situation in more detail, please  contact your Prosperity payroll manager on 02 4907 7222 or your principal adviser.