When an employee works for the same company for a long time, most are entitled to long service leave. Long service leave entitlements vary across Australia but are typically from seven to 10 years, and the amount of leave allowed varies between states and territories as well.
However, the big question is whether an employer should pay superannuation on long service leave. This includes payments while that employee is on leave and within termination payments for untaken leave. As it turns out, those two distinctions make all the difference.
Long service leave and superannuation
An employee’s superannuation is usually paid on the basis of the percentage prescribed by the Superannuation Guarantee legislation (currently 11% from July 2023), calculated on an employee’s salary.
Typically, long service leave is paid according to an employee’s ordinary pay rate. Since super is paid on an employee’s salary, it would seem as though super would be paid on long service leave.
However, this is not always the case.
According to the Australian Taxation Office, whether or not super is paid on long service leave payments depends on whether an employee returns to work after taking long service leave, or resigns and takes their long service leave as part of a lump sum payment on termination.
According to the Australian Taxation Office Superannuation Guarantee Ruling (SGR 2009/2), when an employee returns to work after their long service leave, the leave payments are considered part of their ordinary pay, and super therefore IS included.
However, payment in lieu of unused long service leave, such as on termination of employment, does not attract the employer superannuation guarantee, as it is not considered part of ordinary pay.
This means employees’ super funds may benefit more from taking their long service leave while still working for a company. Businesses may benefit more when the leave is part of a lump sum payment on termination, negating the need to add super payments on top of this final payout.
