The Workplace Relations Department have recently been receiving calls from members in relation to annual leave loading and whether it attracts superannuation payments. The view has previously always been that leave loading in the majority of modern awards, including the Vehicle Manufacturing, Repair Services and Retail Award 2010, was an additional payment as compensation for the loss of opportunity to work overtime during a period of leave.
Because of this interpretation, the advice has always been that leave loading does not attract superannuation as it is not classified as ordinary time earnings (OTE).In March 2019, the ATO clarified their position on this matter. They have expressed that the onus is now on employers to prove, with written evidence that the leave loading is aimed to be compensation for loss of potential overtime. The evidence would need to come in the form of express words of an award or agreement or other written evidence (for example, a documented policy) that clarifies the reason for the entitlement, and reflects the mutual understanding of both parties to the agreement that gives rise to the entitlement.
If employers do not have this evidence, the ATO expects them to ensure they obtain it as soon as practicable, or alternatively assess their future entitlements on the basis that their annual leave loading falls within OTE. In respect of the Vehicle Manufacturing Repair Services and Retail award 2010, it states the following:
29.9 Payment for period of leave
[29,7(a) substituted by PR992635 ppc 29Jan10; 29.7 renumbered as 29.9 PR 583095 ppc 29Jul16]]
- Instead of the base rate of pay as referred to in s.90(I) of the Act, an employee under this award, before going on annual leave, must be paid the wages they would have received in respect of the ordinary hours the employee would have worked had the employee not been on leave during the relevant period. During a period of annual an employee will also receive a loading as follows:
- Subject to clause 29.9 (c), the wages to be paid must be worked out on the basis of what the employee would have been paid under this award for working ordinary hours during the period of annual leave, including allowances, loadings and penalties for all purposes of the award, first aid allowance and any other wages payable under the employee’s contract of employment including any over award payment.
- The employee is not entitled to payment in respect of overtime, special rates or any other payment which might have been payable to the employee as a reimbursement for expenses incurred.
Employees who would have worked on day work only had they not been on leave – 17.5% loading.
Employees who would have worked on shiftwork had they not been on leave – 17.5% loading or the shift loading, whichever is the greater but not both.
Whether or not this clause in the award is enough to justify “express words of the award” is yet to be known. The MTA would suggest, to err on the side of caution, either pay the super as OTE or have a clause in either an employment contract or policy that states the leave loading paid is to compensate for the loss of opportunity to work overtime. Having records that overtime is normally worked, and how often, may also help determine the requirement.
As for salaried employees, as they do not get paid an additional amount for overtime worked, any leave loading would now be classified as OTE and therefore superannuation needs to be paid on that portion. Another suggestion is to include the leave loading as part of any above award payment with the inclusion of an offsetting clause in the employment contract.
Members seeking further clarification on the above can contact the Workplace Relations team by calling 8291 2000 or by clicking here.