Superannuation is easy to ignore while an employee is on the payroll: the payroll system calculates the superannuation guarantee (SG) on each pay and it happens in the background. When someone leaves, that routine stops, and the final pay has to be worked out component by component. Some of those components attract SG at the current rate of 12%, and others do not. Getting the split wrong can mean an SG shortfall, and the ATO can make that expensive.
This guide sets out how the SG system treats the main termination payments: outstanding wages, unused annual leave and long service leave, payment in lieu of notice, redundancy pay, and employment termination payments (ETPs). It also covers the shift to payday super from 1 July 2026, which changed when contributions must be paid, and the edges where employers commonly slip up.
Who does what in the superannuation guarantee system
Four parties sit behind every SG payment:
- The employer: must pay at least the SG rate (12% since 1 July 2025) into a complying super fund for eligible employees, calculated on the right earnings base.
- The ATO: administers the system. If an employer pays too little, late, or to the wrong place, the ATO can assess the super guarantee charge (SGC).
- The super fund: receives the contributions and holds them for the employee.
- The employee: the beneficiary, and usually the person asking the pointed questions when a final pay arrives.
The tension sits between the employer and the ATO. The ATO only cares that the correct SG reaches the fund on time, while the employer has to work out which parts of a complex final pay are superable in the first place. That is why termination pays are where SG errors concentrate.
The base: ordinary time earnings and qualifying earnings
SG is not payable on everything you pay an employee. The anchor concept is ordinary time earnings (OTE), defined in the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGAA). In short, OTE is what you pay an employee for their ordinary hours of work, including commissions, shift loadings and casual loading. Overtime is not OTE, provided the employee's ordinary hours are clearly identified in their award or agreement.
From 1 July 2026, the payday super reforms replaced OTE with a broader base called qualifying earnings. Qualifying earnings include everything that was OTE, plus commissions paid entirely for work performed outside ordinary hours. The ATO has confirmed that every payment that counted toward SG up to 30 June 2026 still counts from 1 July 2026, and out-of-hours commissions are the only addition. For termination payments this makes no practical difference: the amounts that attract SG are the ones that count as OTE, and therefore as qualifying earnings, and the amounts that do not are the same under both regimes.
Two numbers anchor the system. The SG rate is 12%, and it did not change when payday super started. For high earners, SG is capped by a maximum contribution base, which is $270,830 for 2026-27.
For earnings paid up to 30 June 2026, contributions were due quarterly, by 28 October, 28 January, 28 April and 28 July, moving to the next business day when a due date fell on a weekend or public holiday. From 1 July 2026 employers must instead pay SG for each payday. Missed or late payments trigger the super guarantee charge, and the contributions cease to be tax deductible.
What counts as a termination payment
A termination payment is the catch-all term for everything you might owe when employment ends. Each component lands in a different place on the SG map, so the first step is identifying what you are actually paying:
- Outstanding wages: ordinary hours the employee worked but had not been paid for at the time they left.
- Unused annual leave: a lump sum for accrued leave not taken, which may include leave loading.
- Unused long service leave: accrued entitlement paid out on exit under state or territory law.
- Payment in lieu of notice: paid when you end employment without requiring the notice period to be worked.
- Redundancy pay: the statutory redundancy entitlement, often with a genuine redundancy component.
- Employment termination payments: lump sums paid because employment ends, outside annual and long service leave, such as ex gratia amounts, golden handshakes, damages for wrongful dismissal, or cash-outs of unused rostered days off (RDOs) in some workplaces.
The general rule that follows is simple to state and harder to apply: payments made in consequence of the termination of employment are generally not OTE, and the exception is any payment that substitutes for ordinary hours the employee would otherwise have worked. Working out which category each component falls into is the whole game.
How each termination component is treated
Outstanding wages and overtime
If the final pay includes wages for ordinary hours the employee worked but had not yet been paid, that amount is OTE and SG applies at 12%. Any overtime in the final pay is not OTE, so no SG is payable on the overtime portion, as long as the ordinary hours are clearly identifiable.
Unused annual leave and leave loading
A lump sum for unused annual leave paid on termination does not attract SG. The ATO's guidance is that unused annual leave and leave loading paid on termination are not OTE, and this applies regardless of the reason for termination. Note the contrast with cashing out annual leave during employment, which is OTE: the treatment flips when employment ends.
Leave loading follows the same path. Loading paid while an employee is actually on annual leave is generally OTE, unless it is clearly linked to a lost opportunity to work overtime. Loading paid out with unused annual leave on termination is not superable.
Long service leave
Unused long service leave paid out at the end of employment is treated the same way: it is not OTE, so no SG is payable. This holds across resignation, retirement and redundancy. State and territory laws set the entitlement, but the SG treatment does not vary.
Payment in lieu of notice
Payment in lieu of notice is the standout exception to the general rule. Because it stands in for ordinary hours the employee would have worked during the notice period, the ATO treats it as OTE for all termination reasons. In practice, calculate SG at 12% on the notice amount just as you would have on the wages for the period.
Redundancy payments
Redundancy pay itself does not attract SG; the ATO lists it among the payments made in consequence of termination that are not OTE. But redundancy packages are usually made up of several components, and each is treated on its own merits. If the package includes a payment in lieu of notice, SG applies to the notice component even though the redundancy component is not superable.
The tax treatment is a separate question. A genuine redundancy payment may be tax free up to a cap under income tax law, but that does not change what attracts super.
Employment termination payments and other lump sums
Employment termination payments are lump sums paid because employment ends, outside of annual leave and long service leave: ex gratia payments, golden handshakes, and certain compensation or damages for dismissal. They are not OTE and do not attract SG. The same applies to other lump sums paid out at exit, including unused RDOs, unused time off in lieu of overtime, and unused personal or sick leave. None of them is payment for ordinary hours, so none is superable.
A worked example: a redundancy package
The ATO's own example shows how a single termination package is split. An employee is made genuinely redundant and receives a total of $40,000 made up of:
- $10,000 payment in lieu of notice
- $25,000 redundancy payment
- $5,000 ex gratia payment
Only the $10,000 notice component is OTE. The SG payable is 12% of $10,000, which is $1,200. No SG is payable on the remaining $30,000. The same result holds under qualifying earnings from 1 July 2026.
Where the edges bite: casuals, awards and contractors
Casual employees
Casual employees do not accrue paid annual leave under the National Employment Standards: s 86 of the Fair Work Act 2009 (Cth) provides that the annual leave provisions apply to employees other than casual employees. There is usually no leave payout to worry about at the end of a casual engagement. Super is still payable on their ordinary hours, including any ordinary hours in the final pay cycle, and a genuine payment in lieu of notice to a casual is superable for the same reason it is for anyone else.
Awards and enterprise agreements
OTE sets the floor, not the ceiling. The ATO notes that employers may have additional superannuation obligations under an industrial instrument, and a modern award or enterprise agreement can require super on amounts that are not OTE. Check the instrument that covers the departing employee before you finalise the pay.
Contractors paid mainly for labour
Some contractors count as employees for SG purposes. Under s 12(3) of the SGAA, a person who works under a contract that is wholly or principally for their labour is an employee of the other party to the contract, and the ATO's qualifying earnings guidance confirms that eligible contractors are included. Classification is fact dependent, and a quick review is worthwhile if you engage contractors who do most of the work themselves.
Allowances in the final pay
Allowances that are paid for ordinary hours of work are generally OTE, while expense reimbursements are not. On a final pay, an allowance that was part of the employee's usual earnings for ordinary hours is superable; a reimbursement of expenses actually incurred is not.
When a lawyer or accountant should be involved
Most of the errors in this area happen in the mapping, not the maths. Payroll systems come with default categories, and a termination item that was never mapped to OTE, such as a notice payment, will quietly miss its SG. On a complex exit, it is worth having the itemisation checked before you pay:
- An accountant can confirm the tax treatment and reporting of ETPs and genuine redundancy payments, including PAYG withholding, lump sum reporting and single touch payroll.
- A lawyer can check the components against the relevant award or enterprise agreement, confirm the classification of contractors, and make sure the genuine redundancy requirements are met, since a redundancy that is not genuinely redundant loses its concessional tax treatment.
Pay super on the payment in lieu of notice
Across all the termination components, one consistently causes SG shortfalls: the payment in lieu of notice. Employers treat the entire termination package as a single exit payment, assume none of it attracts super, and miss SG on the notice component. Under payday super the error also surfaces faster, because contributions are checked against each pay period rather than in a quarterly lump.
The practical fix is to itemise every component of the final pay, mark each one as superable or not against the ATO's lists, verify that your payroll settings map the notice item to OTE, and pay the super on the superable subtotal by the applicable due date. On any exit involving redundancy, ETPs or an unusual award, have a lawyer review the itemisation before the pay runs. It is a small cost compared with the super guarantee charge, the lost tax deduction, and the dispute with a departing employee that follows a shortfall.