Do we pay super on termination and redundancy pay?

Is the super guarantee paid on termination?

Generally, the answer is no – although payment in lieu of notice is an exception to this general rule. Whether superannuation guarantee is included on a particular termination payment is determined by the relevant Commonwealth superannuation law and the Fair Work Act.

Annual leave, long service leave, redundancy pay

According to the Australian Taxation Office’s Superannuation Guarantee Ruling SGR 2009/2, lump sum payments on termination such as payment of unused annual leave or long service leave pay do NOT attract the super guarantee because it is not considered to be ordinary time earnings. The ruling also provides that redundancy pay is NOT considered to be part of an employee’s ordinary time earnings and, therefore, does not attract the super guarantee.

Is the superannuation guarantee paid on redundancy?

Does redundancy pay include the superannuation guarantee? No, it doesn’t. 

The Fair Work Act 2009 (s119(2)) provides that the amount of redundancy pay equals an eligible employee’s ‘base rate of pay’ for their ordinary weekly hours of work. The base rate of pay is the employee’s ordinary weekly rate of pay for their ordinary hours of work, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts. 

Superannuation guarantee contributions would be considered to be covered under ‘other separately identifiable amounts’ and, therefore, not included in redundancy pay.

Payment in lieu of notice

The Fair Work Act (s117(2(b))) requires an employer to provide the relevant period of notice of termination to an employee or the payment of the equivalent in lieu of notice. The amount in lieu is to be paid to the employee, at the full rate of pay, for the hours the employee would have worked had the employment continued until the end of the minimum period of notice. 

'Full rate of pay' is defined in the Fair Work Act (s18) to include the following: incentive-based payments and bonuses; loadings; monetary allowances; overtime or penalty rates; any other separately identifiable amounts. 

Superannuation contributions

In defining 'full rate of pay' under the notice of termination provision of the Fair Work Act, the Explanatory Memorandum to the Fair Work Bill 2009 states that when an employer elects to pay an employee in lieu of providing notice of termination, this payment must include payments made on behalf of the employee, including superannuation contributions. 

In addition, the employer is required to include the payment in lieu of notice in the employee’s ordinary time earnings when calculating the super guarantee. (See Superannuation Guarantee Ruling 2009/2).

Note: there is a distinction between the nature and purpose of a period of notice or payment in lieu, and a redundancy payment. While the two are often treated together to arrive at a total redundancy package, the separate nature and purpose of the two entitlements remains. A period of notice is to give an employee the opportunity to adjust to the change in circumstance that is to occur, and to seek other employment. Severance or redundancy pay is to provide the employee with compensation for the loss of wages during an anticipated period of unemployment.