Superannuation on Long Service Leave, what Australian Employers Must Pay

If you employ staff in Australia, long service leave is a payroll event you will eventually have to process, and the question of whether superannuation is payable on it has a clear answer with two different outcomes depending on how the leave is paid. Getting it wrong either way costs money: pay super where it is not required and you overpay; skip it where it is required and you owe the ATO a penalty-laden charge.

The obligation in play is the superannuation guarantee (SG) under the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGAA). As an employer you must contribute at least the SG rate, currently 12%, of an eligible employee's ordinary time earnings (OTE) to their super fund. Whether long service leave attracts super turns entirely on whether the payment counts as OTE: leave taken as paid time off while the employee remains employed is OTE and super applies; long service leave paid out as a lump sum when employment ends is expressly excluded from OTE, and no super is required on it. This article sets out who the obligation applies to, how to apply the OTE test to each way long service leave can be paid, how to process the payments correctly, and what the ATO can do if you get it wrong.

Who Has to Pay Super on Long Service Leave

Long service leave itself is a statutory entitlement set by state and territory legislation, not by the Fair Work Act 2009 (Cth). In NSW, for example, the Long Service Leave Act 1955 (NSW) gives a worker two months of long service leave after ten years of continuous service, with a pro-rata entitlement accruing from five years (a proportionate amount calculated on the basis of two months for ten years). Other states and territories have their own thresholds and accrual rates, so the entitlement that eventually lands in your payroll depends on where your employees work.

The SG obligation that attaches to that leave applies broadly, as the ATO's guidance on working out whether you have to pay super makes clear:

Employees: Super is payable for all employees, full time, part time or casual, regardless of how much they earn. The old $450-a-month minimum earnings threshold was removed, and SG is now payable on every dollar of OTE up to the maximum contribution base.
Under 18s and domestic workers: Employees under 18, and private or domestic workers, are eligible for SG only if they work more than 30 hours in a week.
Contractors: Independent contractors who are paid mainly for their labour are eligible for SG on the labour component of their invoices, even if they quote an ABN.

Whether a casual employee accrues long service leave at all depends on the state or territory rules. In NSW the Act counts service on a permanent, casual, part-time or any other basis, so casuals can accrue leave if they meet the continuity requirements. Once the leave exists, the super treatment follows the same OTE test that applies to every other employee.

Duty 1: Pay Super When Long Service Leave Is Taken as Paid Leave

When an employee takes long service leave during their employment and you pay them their usual pay for that period, those payments are earnings in respect of ordinary hours of work, which is the heart of the OTE definition in s 6(1) of the SGAA. Paid leave taken while the employment continues is treated the same as ordinary wages: it goes into the employee's OTE, and you calculate SG on it at the current rate.

An example shows how this works in practice. An employee on $1,500 a week takes four weeks of long service leave. You pay them $6,000 in long service leave pay for that period. That $6,000 counts as OTE, so at the 12% SG rate your contribution obligation for the leave is $720, on top of whatever you contribute for the employee's other ordinary hours in that quarter. The contributions must reach the employee's fund by the quarterly due date (see Duty 3 below).

The same principle applies to annual leave and paid sick leave taken during employment. They are all paid leave taken while the employment continues, they are all OTE, and super is payable on all of them. The treatment of leave taken is uniform; it is the payout at the end of employment that is different.

Duty 2: No Super on Long Service Leave Paid Out on Termination

This is where payroll errors happen. When employment ends and you pay out an unused long service leave balance as a lump sum in the final pay, the SGAA definition of OTE expressly excludes that payment. Section 6(1) of the SGAA carves out of OTE any lump sum payment made on termination of employment that is an unused annual leave payment or an unused long service leave payment within the meaning of the Income Tax Assessment Act 1997 (Cth). The ATO's list of payments that are not ordinary time earnings reflects the same position: payments in respect of ordinary hours are generally OTE, but unused leave paid out when employment ends is not.

So the rule of thumb is a simple one: super on leave taken, no super on leave cashed out when the employment ends. Unused annual leave paid out on termination gets the same treatment as long service leave.

Two caveats are worth flagging so the rule is not applied too bluntly:

The exclusion covers the unused leave lump sum itself. Other components of a final pay, such as ordinary wages up to the last day of employment, follow their own rules and still attract SG. Do not assume the whole final pay is treated one way.
If some leave was taken and paid during employment and only the remainder is paid out on termination, each part gets its own treatment. The taken portion was OTE; the paid-out portion is not.

If an employee is dismissed for serious and wilful misconduct, state long service leave laws may extinguish the entitlement entirely, in which case there is no payment and no super question at all. State law determines whether the entitlement exists; the SGAA determines whether super applies to it.

Duty 3: Process and Pay It Correctly

Getting the calculation right matters less than getting the timing and the payroll categories right, because the ATO's enforcement attention falls on late and missing payments:

Rate: The SG rate is 12% for salary and wages paid from 1 July 2025. It was 11.5% in 2024-25, and it can change again, so confirm the rate for the period you are paying rather than assuming it never moves.
Frequency: Until 30 June 2026, SG is due quarterly, 28 days after the end of each quarter: 28 October, 28 January, 28 April and 28 July. From 1 July 2026 the payday super rules apply, and SG must be paid at each payday, generally with the contribution received by the fund within seven business days after pay.
Payroll setup: Configure your payroll categories so long service leave taken is treated as OTE and long service leave paid out on termination is excluded from OTE. This is the single most important setting, because payroll software defaults do not always distinguish between leave paid during employment and leave cashed out on exit.
Records: Keep payslips and records that separate ordinary pay, paid leave and lump sum payouts. If the ATO ever asks, or an employee queries their final pay, a clean breakdown answers both without a re-run of the calculations.

What Happens if You Get It Wrong

If SG is not paid in full, on time and to the right fund, you become liable for the super guarantee charge (SGC). The SGC is a tax, not a contribution to the employee's fund, and it is not tax-deductible. As the ATO explains, it is more than the super you would otherwise have paid, and it includes:

the SG shortfall, being the super calculated on the employee's salary and wages, plus any choice liability capped at $500 where you failed to comply with choice of fund rules;
nominal interest of 10% per annum, accruing from the start of the relevant quarter; and
an administration fee of $20 per employee per quarter.

The SGC statement must be lodged, and the charge paid, one calendar month after the SG due date. Nominal interest cannot be reduced or waived, and the general interest charge accrues on any SGC that remains unpaid.

The ATO prioritises collection of unpaid super. It can issue assessments for the SGC, inform affected current and former employees of any shortfall, and escalate to additional penalties where an employer does not engage. For companies, unpaid super can also expose directors to personal liability through the director penalty notice regime. None of this is avoidable by classifying the employee differently at the last minute: contractors paid mainly for labour, and employees regardless of earnings, are all within scope.

Compliance Checklist

Work through this list before the next pay run, and again before any termination:

Confirm which state or territory long service leave law applies to each employee, and whether casuals in your workforce accrue leave.
Check that your payroll categories treat long service leave taken as OTE and long service leave paid out on termination as non-OTE.
Apply the current SG rate, and re-check it each 1 July.
Pay SG by the quarterly due date, or from 1 July 2026 at each payday.
Separate the components of every final pay, and make sure the payslip shows the unused leave payout separately from ordinary wages.
Review any award or enterprise agreement that covers your staff, since some instruments impose higher super obligations than the statutory minimum.
Audit your payroll software's default treatment of leave payouts before processing a termination, not after.

When You Need Professional Help

You can run this obligation yourself if your workforce is straightforward and your payroll categories are correctly set. Professional help is worth getting where the facts are more complicated:

your payroll software cannot be configured to split leave taken from leave paid out, and you are about to process a termination;
an award or enterprise agreement covers your staff and you are not sure whether it adds super obligations on top of the SGAA;
you are deciding whether a worker is an employee or a contractor paid mainly for labour;
the ATO has already issued an assessment or a director penalty notice, where the options include objecting, negotiating a payment plan, or managing director liability.

A practitioner's role here is to map each payment stream in your payroll to its OTE treatment, confirm the state long service leave entitlement that applies, and deal with the ATO if a charge has already crystallised. The cost of a review is small next to an SGC that compounds interest and fees.

Start With Your Payroll Leave Categories

The duty most often missed in practice is not the rate or the due date. It is the payroll classification that decides everything else. If your payroll software treats every long service leave payment as OTE, you will pay super on termination payouts that do not attract it, and you may equally fail to flag the leave-taken payments that do. Before you process another leave payment or final pay, open your payroll categories, confirm how each long service leave payment is classified, and check the current SG rate against the ATO's figures. That ten-minute check is the difference between a correct super obligation and an SGC assessment that is not tax-deductible, accrues interest from the start of the quarter, and follows the business long after the employee has left.