How Leave Loading Interacts with Superannuation in Australia

If your business pays leave loading, you’re not alone in wondering whether superannuation should be added on top.

The short answer is: it depends on why the leave loading is paid and when it’s paid. The ATO’s position turns on Ordinary Time Earnings (OTE) and the specific circumstances of the payment.

In this guide, we’ll break down when super is payable on leave loading, how to document your position properly, and how to calculate it confidently so your payroll stays compliant.

What Is Leave Loading And How Does Super Work?

Leave loading is an extra payment (often 17.5%) on top of an employee’s base pay when they take annual leave. It’s designed to compensate eligible employees for certain losses when they’re on leave-historically, the loss of overtime and other penalties they might have earned while working.

Superannuation is generally calculated on an employee’s Ordinary Time Earnings (OTE). From 1 July 2025, the Superannuation Guarantee (SG) rate is 12%. If you’re paying for earlier periods, you’ll need to apply the SG rate that applied in that period.

Understanding whether leave loading forms part of OTE is the key to getting super right.

Is Leave Loading Included In Ordinary Time Earnings (OTE)?

As a starting point, leave loading paid when an employee actually takes annual leave is generally considered part of OTE.

However, there’s an important exception. If you can clearly demonstrate that your leave loading is paid to compensate for the loss of overtime during leave, then the ATO accepts it is not OTE. In that case, super wouldn’t be payable on the leave loading component.

What does “clearly demonstrate” look like? In practice, you need written evidence-such as your award, enterprise agreement, Employment Contract or a documented policy-stating the purpose of the leave loading is to compensate for lost overtime. If this purpose isn’t spelled out, the conservative (and common) position is to treat leave loading as OTE and pay super on it.

For more context on what counts as OTE, it can help to revisit the rules around Ordinary Time Earnings.

Common Scenarios: When Is Super Payable On Leave Loading?

1) Leave Loading Paid When Annual Leave Is Taken

Default position: super is payable on the leave loading component because it’s part of OTE.

Exception: if you have documented evidence that the loading compensates for a loss of overtime, super is not payable on the loading. Make sure your documents say this explicitly.

If your business is still finalising its position on the purpose of loading, consider reviewing your policy and aligning your Annual Leave Loading wording with your award or contract framework.

2) Leave Loading Paid On Cashed-Out Annual Leave

When annual leave is cashed out during employment (not on termination), it is generally treated as OTE.

That means super is usually payable on the leave loading attached to cashed-out leave-unless you can clearly demonstrate the “loss of overtime” purpose noted above. If you’re considering this option, ensure your cash out arrangements follow the rules and your policy is tight. A refresher on cashing out annual leave is a good starting point.

3) Leave Loading Included In Unused Annual Leave On Termination

Payments for unused annual leave on termination are specifically excluded from OTE. Accordingly, super isn’t payable on that component-this includes any leave loading that is part of an unused leave payout.

For the broader rules at termination (for example, redundancy vs resignation and different payment types), see the treatment of termination payments.

4) Backpay Or Corrections For Past Periods

If you identify an underpayment of leave loading relating to leave actually taken in prior periods, you’ll generally need to pay super on that loading (unless you have the documented “loss of overtime” purpose). You should also check the applicable SG rate for the historic period and pay any general interest charge if you’re lodging a late Super Guarantee Charge (SGC).

5) What About Bonuses And Other Extras?

Not directly leave loading, but many employers ask how “extras” are treated. As a rule of thumb, most discretionary bonuses aren’t OTE unless they relate to ordinary hours. It’s worth reviewing how your bonuses are structured and recorded. Our overview of super on bonuses explains the nuances.

How To Calculate Super On Leave Loading (With Examples)

Before running the numbers, confirm:

• Whether your leave loading is documented as compensating for loss of overtime (and therefore not OTE), or
• Whether it’s treated as OTE (and therefore super applies).

Assuming your leave loading is OTE, here’s how the calculation usually looks.

Example A: Annual Leave Taken (Loading Is OTE)

Facts:

• Base ordinary rate: $30.00 per hour
• Hours of annual leave taken in the pay period: 38
• Leave loading rate: 17.5%
• SG rate in the pay period: 12%

Step 1: Calculate leave pay and loading.

• Leave pay: 38 × $30.00 = $1,140.00
• Leave loading: $1,140.00 × 17.5% = $199.50
• Total OTE for the leave component (if loading is OTE): $1,140.00 + $199.50 = $1,339.50

Step 2: Calculate super on OTE.

• Super: $1,339.50 × 12% = $160.74

Example B: Annual Leave Taken (Loading Is Not OTE Due To “Loss Of Overtime” Purpose)

Facts as above, but loading is not OTE based on your documented purpose.

• OTE includes the leave pay only: $1,140.00
• Super: $1,140.00 × 12% = $136.80

Example C: Unused Annual Leave Paid Out On Termination

Facts:

• Unused annual leave payout: $2,000.00 (including any loading)
• Termination date within the current quarter

Unused annual leave on termination is not OTE, so no super is payable on this amount. You’ll still need to include it correctly in the employee’s final pay and ensure tax withholding is handled correctly for the applicable lump sum category.

Quick Reminders For Calculations

• Apply the correct SG rate for the period you’re paying (it’s 12% from 1 July 2025).
• Pay super on OTE only. If your leave loading is clearly documented as overtime-compensatory, exclude it from OTE.
• Check award or enterprise agreement rules and keep the employee’s contract and policies consistent with that framework.
• If you identify historic underpayments, correct the OTE and super for the relevant periods and address any SGC obligations.

Payroll And Documentation Tips To Stay Compliant

Getting the settings right is only half the job-good documentation is what protects your position if you’re audited or if questions arise down the track.

Document The Purpose Of Your Leave Loading

If you intend to treat leave loading as not OTE, your documentation must say so. Ideally, the wording appears in the award or enterprise agreement that covers your employees. If that instrument is silent, include clear wording in your internal policy and employee contracts to the effect that the loading compensates for the loss of overtime during periods of annual leave.

Align the language across your policy and Employment Contract, and keep copies of any guidance you relied on when settling the wording.

Set Up Payroll Correctly

• Create separate pay items for “Annual Leave” and “Leave Loading” so you can include or exclude amounts from OTE as needed.
• Use clear naming conventions in your payroll system and payslips so calculations are transparent.
• Review your super configuration each July (rates can change and awards are updated regularly).

Keep Evidence Of Your Decision-Making

• Retain excerpts of awards/agreements and internal policies that describe leave loading’s purpose.
• Record when and why you set a particular OTE treatment-especially if your approach changes.
• Document consultation with advisors and any ATO or Fair Work guidance you relied on.

Check Related Payments

While reviewing leave loading, audit how you treat other payments such as allowances, commissions and bonuses. The OTE treatment can vary, so it’s smart to sanity-check your approach against your arrangements for super on bonuses and similar items.

Don’t Forget Termination Scenarios

Many errors happen at exit. Reconfirm whether super is payable on different categories of termination payments and ensure unused leave payouts-including any loading-are excluded from OTE in those cases. If the employee resigns and you’re settling entitlements, it may help to revisit your obligations around annual leave on resignation.

Keep Your Policies Consistent With Your Contracts

Your leave policy should dovetail with your contracts and any applicable industrial instrument. If you change your approach to OTE treatment for leave loading, keep versions of the policy and communicate changes clearly to staff (ideally in writing).

Key Takeaways

• Super is generally payable on leave loading when annual leave is taken, unless you have clear written evidence that the loading compensates for the loss of overtime.
• Leave loading paid with unused annual leave on termination is not OTE-no super is payable on that component.
• Cashing out annual leave during employment usually attracts super on the loading unless the “loss of overtime” purpose is documented.
• The SG rate is 12% from 1 July 2025; apply the correct rate for the period and make sure your payroll items are set up to include or exclude loading from OTE as intended.
• Lock in your position with solid documentation across awards/agreements, policies and the employee’s Employment Contract, and keep clear records of your decision-making.
• Double-check connected rules such as Ordinary Time Earnings, cashing out annual leave and final pay to keep your payroll consistent and compliant.

If you’d like a consultation on how leave loading interacts with superannuation for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.