Paying super on annual leave, what counts and what doesn't

If you employ staff in Australia, you have to pay superannuation on top of some payments and not others, and annual leave sits on both sides of that line. The short version is this: super is payable when an employee is paid for annual leave they actually take, including annual leave loading, but it is generally not payable on a lump sum payout of unused leave when employment ends. Getting that distinction wrong is expensive, because the super guarantee charge (SGC) is more than the super you would have paid and is not tax deductible.

This article sets out who the obligation applies to, which leave payments attract super and which do not, the deadlines for paying, and the practical steps to keep payroll compliant. The rules changed on 1 July 2026 with the introduction of Payday Super, so the current position is covered first, with the old quarterly rules noted where they still matter.

Who has to pay super and on what

Super guarantee applies to employers that pay eligible employees. Since 1 July 2022 there has been no minimum earnings threshold, so the old $450-a-month rule is gone and super is payable regardless of how much an employee earns. The key eligibility points are:

Full-time, part-time and casual employees: super is payable for all of them. The difference for casuals is that they generally do not accrue paid annual leave under the National Employment Standards, so there is usually no annual leave payment for super to attach to.
Age: you pay super for employees aged 18 or over no matter how many hours they work. For employees under 18, you only pay if they work more than 30 hours in a week.
Contractors: from 1 July 2026, independent contractors who are paid mainly for their labour are treated as employees for super purposes, and you calculate super on the labour component of their invoices.
The rate: the super guarantee rate is 12% of eligible earnings, and has been since 1 July 2025.

For periods up to 30 June 2026, super was calculated on ordinary time earnings (OTE), defined in the Superannuation Guarantee (Administration) Act 1992 (Cth) as broadly the amounts you pay an employee for their ordinary hours of work. From 1 July 2026 the same payments are called qualifying earnings, and the ATO has confirmed that everything that counted for super up to 30 June 2026 continues to count under Payday Super, with the only addition being commissions paid for work done entirely outside ordinary hours. Paid annual leave is one of the payments that counts.

Pay super on annual leave taken as time off

When an employee takes paid annual leave during employment, the payment is OTE and, from 1 July 2026, qualifying earnings. You must pay super on that leave payment at 12%, exactly as if the employee had worked their ordinary hours.

A full-time employee who takes two weeks of annual leave and is paid $2,000 for the period attracts a super contribution of 12% of $2,000, or $240, which must reach the employee's super fund by the applicable Payday Super deadline. The same logic applies to a part-time employee taking annual leave for their usual shifts, because the leave is paid at the ordinary rate for their ordinary hours.

Annual leave accrues at four weeks per year for full-time and part-time employees under s 87 of the Fair Work Act 2009 (Cth), and the super treatment does not depend on how much leave is sitting in the balance. Super is assessed on payments actually made, not on leave accrued.

Pay super on annual leave loading unless it is linked to lost overtime

Annual leave loading is the extra payment, often 17.5%, that many employees receive while on annual leave under a modern award or enterprise agreement. The ATO's position is clear: annual leave loading is included in OTE and qualifying earnings unless it is clearly linked to a lost opportunity to work overtime.

In practice, that means you should generally pay super on the loading. The exception applies only where the loading is expressly paid to compensate for overtime the employee would otherwise have worked, and the industrial instrument actually says so. If your award or agreement is silent or unclear, the default position is that the loading attracts super.

An employee covered by an award that provides 17.5% loading who takes a week of annual leave on a base wage of $1,500 plus $262.50 loading attracts super on the whole $1,762.50, not just the base wage.

No super on unused annual leave paid out at termination

When an employee resigns, retires or is dismissed, unused annual leave is usually paid out as a lump sum. The ATO treats that payout differently from leave taken: unused annual leave and any leave loading paid on a normal termination are not OTE and are not qualifying earnings, so no super is payable on them. The same applies to long service leave paid out on termination.

Two details are worth knowing:

The 1993 carve-out: the carve-out covers leave accrued after 17 August 1993, which is essentially all leave held by a modern workforce, with older accruals being a historical curiosity.
Other termination payments: the ATO confirms that employment termination payments and unused leave payments do not form part of an employee's OTE or qualifying earnings, so payments in lieu of notice and genuine redundancy or severance payments do not attract super. They may still be taxed as employment termination payments, but for super purposes they are not superable.

The trap to avoid is double counting. If your payroll system has a single annual leave pay item, a termination payout can be incorrectly flagged as superable. The payout needs its own pay item with super switched off, separate from the pay item used for leave taken.

Super on cashing out annual leave during employment

Cashing out annual leave while employment continues is different from a termination payout. The ATO's payment tables treat cashed-out annual leave and leave loading paid in service as OTE and qualifying earnings, so super is payable on the cash-out amount.

Cash-outs are only available where an award, enterprise agreement or employment contract allows them, and the National Employment Standards cap how much leave can be cashed out, so check your instrument before offering the option. If your business does offer cash-outs, treat the payment as superable in payroll and make sure your policy matches what your instrument actually permits.

Other paid leave works on the same principle: paid sick and carer's leave, and public holidays paid as ordinary hours, are OTE and qualifying earnings. Unpaid leave generates no payment and therefore no super. Two payments that do not attract super are employer-paid parental leave, and workers compensation payments for periods when the employee is not required to work, including top-up payments to normal pay.

Long service leave follows the same pattern

Long service leave is treated the same way as annual leave for super purposes. When an employee takes long service leave during employment, the payment is OTE and qualifying earnings, so super is payable on it. When unused long service leave is paid out as a lump sum on termination, it is not OTE or qualifying earnings, and no super is required.

The entitlement itself comes from state and territory legislation rather than the National Employment Standards, and accrual periods vary by jurisdiction, but the super treatment of the payment follows the same taken-versus-paid-out distinction.

The deadlines: Payday Super from 1 July 2026

From 1 July 2026, super must be paid each payday rather than quarterly. A contribution is on time if the super fund receives it, with the information needed to allocate it to the employee's account, within 7 business days after you pay the employee. For the first contribution for a new employee, or to a new fund, the deadline extends to 20 business days after payday.

For earnings paid up to 30 June 2026 the quarterly regime still applies, with due dates of 28 January, 28 April, 28 July and 28 October for the preceding quarter. If you are correcting historical underpayments, those are worked out under the quarterly rules.

What happens if you get it wrong: the super guarantee charge

If you do not pay the minimum super in full, on time and to the right fund, you are liable for the super guarantee charge. It is made up of the unpaid super amounts plus interest and administrative costs, with an additional loading if you did not follow the choice of fund rules. The charge is not tax deductible, and it is more than the super you would have paid.

Under the quarterly rules the charge included nominal interest at 10% per annum from the start of the quarter, an administration fee of $20 per employee per quarter, and a choice liability capped at $500. From 1 July 2026 the ATO calculates the charge itself for each payday and issues a notice of assessment, so there is no statement for the employer to lodge. In the first year of Payday Super the ATO has said it will not review employers who are paying super for each payday and fixing errors quickly, and will focus on employers that are not paying at all or not making the change. If you realise you have missed a payment, the ATO's guidance is to pay the correct amount to the fund as soon as possible, before an assessment is issued.

A payroll checklist for leave payments

Work through these checks ahead of each pay run:

Pay items: map every leave payment to its own pay item, including annual leave taken, annual leave loading, cashed-out leave and long service leave taken, plus separate items for each termination component such as unused annual leave, unused long service leave and payment in lieu of notice.
Super flags: set the super flag on each pay item to match the rules above. The termination items should have super off, and the leave-taken items should have it on.
Reporting: check the Single Touch Payroll reporting category for each pay item so leave is reported under the right paid-leave type.
Instruments: review your award or enterprise agreement for anything that requires super on amounts that would not otherwise attract it, because industrial instruments can impose higher obligations than the Act.
Timing: reconcile super before each payday under Payday Super, since the window for the contribution to reach the fund is only 7 business days.
Records: keep records of leave accruals, leave taken and termination breakdowns so any period can be reconstructed if the ATO queries it.

When to get professional help

The rules above are the default position, and two situations routinely need advice:

Industrial instrument questions: whether a particular loading is clearly linked to lost overtime, whether your agreement allows cashing out, or whether an award requires super on a payment that would not otherwise attract it. An employment lawyer can read the instrument and tell you what it actually requires.
Historical or large corrections: correcting missed super for past quarters, responding to a super guarantee charge assessment, or working out a complex termination where several components are bundled into one final pay. Those calculations sit at the intersection of payroll, tax and employment law, so a lawyer working alongside your accountant is usually the right combination.

There is also a practical reason to act quickly on mistakes: paying the correct amount to the fund as soon as you spot an error puts you in a better position with the ATO than waiting for an assessment.

The super flag on your leave pay items is the first thing to check

The duty that trips up most small businesses is the one that looks optional: super on annual leave loading and on cashed-out leave. Both are superable in the ordinary case, and both are easy to switch off in payroll by mistake. The termination side is the mirror image, where an unused leave payout must not attract super. Before your next payday, open the payroll software and check the super setting on each leave pay item. If the flags match the treatment set out above, most of the risk is gone. If anything is unclear, that is the moment to ask a lawyer or your accountant, rather than after an assessment arrives.