Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Working out superannuation at the end of employment can be confusing, especially when Employment Termination Payments (ETPs) are involved.
If you’re wrapping up someone’s employment, you’ll likely be juggling notice, final hours, unused leave, redundancy, and maybe an ex gratia amount. The key question many employers ask is simple: do you pay super on ETP?
In this guide, we’ll break down what counts as an ETP, when super is and isn’t payable, how PAYG withholding works on ETPs, and a practical process you can follow so your final pay, super and records are accurate and compliant.
What Is An ETP (And Why Super Matters For Employers)?
An Employment Termination Payment (ETP) is a lump sum paid to an employee when their employment ends, in circumstances beyond standard wages and accrued leave. Common examples include a redundancy payout beyond the tax-free component, an ex gratia “golden handshake”, or a payment in lieu of notice. Superannuation is generally calculated on Ordinary Time Earnings (OTE) - the employee’s pay for ordinary hours of work. Many ETP components are not OTE. That’s why it’s essential to classify each termination amount correctly before you decide whether to pay super on it. If you’d like a refresher on what counts as OTE, see our overview of Ordinary Time Earnings.When Is Super Payable On Termination Amounts?
As an employer, your superannuation obligations depend on what the payment is for. You typically pay super on earnings for ordinary hours (including during any notice period worked), but not on most termination-specific lump sums. Here’s how the common items usually work in practice.Genuine Redundancy And Early Retirement Scheme Payments
Genuine redundancy payments (above any tax-free component) and payments under an approved early retirement scheme are treated as ETPs. These amounts are not OTE, so you generally do not pay super on them.Ex Gratia/“Golden Handshake” Amounts
An ex gratia or “thank you” payment is typically an ETP, separate from normal earnings. Because it isn’t payment for ordinary hours, it generally does not attract super. For context on executive-style departures, see our guide to a Golden Handshake.Payment In Lieu Of Notice
Where you pay out the notice period instead of having the employee work it, that amount is usually treated as an ETP. In most cases, it won’t be OTE and therefore won’t attract super. We unpack the nuances in more detail in our employer guide to Payment In Lieu Of Notice And Superannuation.Unused Annual Leave And Long Service Leave
Payments for unused annual leave and long service leave on termination are not ETPs and are taxed under separate rules. They are not considered OTE, so you generally don’t pay super on these termination leave payouts.Bonuses And Commissions Paid On Termination
If you pay a bonus or commission connected to work performed before termination (for example, an earned but unpaid commission), it may form part of OTE and attract super - even if it is processed at the end of employment. Whether super applies depends on what the payment is actually for and how it is structured. Our employer guide to Superannuation On Bonuses explains the key tests to consider.Garden Leave
If an employee is on garden leave (you direct them not to attend work but they remain employed and are paid), those payments are generally ordinary earnings during employment. Super is typically payable on garden leave pay. You can read more about this arrangement in our overview of Garden Leave.Ordinary Hours Worked Up To The Final Day
Ordinary wages for hours worked up to the final day are OTE - super remains payable on these amounts as usual, up to the termination date.So, Do You Pay Super On ETPs?
In short, most ETPs do not attract super. The safest approach is to classify each component first, then apply the right rule. For a broader snapshot of the common termination items and their treatment, see our article on Do You Pay Superannuation On Termination Payments?How Are ETPs Taxed (And What Must Employers Withhold)?
While super is mostly out of scope for ETPs, you still have PAYG withholding obligations. ETPs are concessionally taxed up to certain caps and depend on the employee’s age and the type of ETP.- The “tax-free” part of a genuine redundancy or early retirement scheme (calculated under tax law) is not an ETP - it has its own tax treatment and is not subject to super.
- Any taxable component of a genuine redundancy payment is an ETP and subject to ETP withholding rates up to the ETP cap for that year.
- Ex gratia payments, payments in lieu of notice, and certain damages-like amounts will often be ETPs and subject to ETP withholding.
Step-By-Step: Handling Super And ETPs At Termination
To make terminations smoother and compliant, put a clear process in place.1) Check The Contract, Award Or Enterprise Agreement
Start by reviewing the employee’s agreement to confirm notice entitlements, bonus terms, termination triggers, and any redundancy provisions. This will guide the items you may need to pay.2) Identify Each Payment Type
List out every component you’ll pay, such as final ordinary wages, notice (worked or in lieu), redundancy, ex gratia, unused leave, commissions, and any allowances. Clear classification is the foundation for getting super and tax right.3) Decide Super Treatment By Component
- Ordinary wages (including garden leave) - usually OTE: super applies.
- Bonuses/commissions linked to ordinary hours - may be OTE: check bonus rules and document basis.
- Redundancy amounts (ETP), ex gratia (ETP), payment in lieu of notice (usually ETP) - generally not OTE: super usually does not apply.
- Unused annual leave/long service leave - not OTE: no super.
4) Calculate Final Pay And Withholdings
Apply the right PAYG rates for ETPs and for unused leave (which is taxed differently). Ensure you’ve also included super on any OTE items up to the termination date.5) Pay Super By The Due Date
For OTE amounts, super is due by the usual quarterly Superannuation Guarantee deadlines. Include any OTE paid at termination in that quarter’s contribution to the employee’s nominated fund.6) Finalise Reporting And Records
Provide the right STP finalisation details and keep clear records of how each amount was classified. If requested, you may also need to provide an employment separation certificate - our overview of Employer Separation Certificates explains when this is relevant.7) Consider A Deed Of Release For Complex Exits
If there are multiple components (for example, redundancy and ex gratia) or sensitive issues, a carefully drafted Deed Of Release and Settlement can bring clarity and reduce disputes. It can also deal with confidentiality, return of property, post-employment restraints and non-disparagement.What Legal Documents Help You Manage Terminations Smoothly?
Having the right documents in place from day one makes end-of-employment events far easier to manage - and helps you stay compliant with workplace and consumer laws.- Employment Contract: Sets the rules for notice, bonuses, restraints, confidentiality and termination triggers so there are fewer surprises later.
- Workplace Policies/Staff Handbook: A consistent framework for performance, discipline, leave and conduct that supports fair and lawful decisions.
- Redundancy Document Suite: Helps ensure your redundancy process is genuine, procedurally fair and clearly documented.
- Employee Separation Agreement: Useful for negotiated exits, clarifying payments, releases and ongoing obligations.
- Deed Of Release: For finalising disputes or complex terminations with clear mutual releases and terms.
Common Scenarios And Pitfalls To Avoid
Misclassifying Termination Payments
Mixing up ETPs with OTE can lead to incorrect super contributions and tax reporting. Always break the final pay into components and assess each one on its purpose.Overlooking Super On Garden Leave Or Bonuses
It’s easy to forget that garden leave is still ordinary earnings (usually OTE) and that some performance-based bonuses may require super. Cross-check arrangements against your contract and our bonus and super guide if in doubt.Using Payment In Lieu Without Checking Super And Tax
Payment in lieu of notice is typically an ETP (no super), but how it’s documented matters. Confirm your classification before you process payroll. Our deep-dive on payment in lieu and super sets out the common scenarios for employers.Redundancy Process Errors
If a role is no longer required, handle the process carefully to meet “genuine redundancy” requirements and avoid unfair dismissal risk. Consider engaging Redundancy Advice early to structure a compliant plan.Not Documenting The Exit
Where there are extra payments (like ex gratia) or sensitive issues, use an Employee Separation Agreement or Deed Of Release to lock in confidentiality, release claims and set clear expectations about post-employment obligations.Key Takeaways
- Super is paid on OTE - not on most ETPs. Classify each termination component first, then decide if super applies.
- Redundancy (taxable component), ex gratia and payment in lieu of notice are usually ETPs and generally don’t attract super; garden leave and some bonuses can be OTE and do attract super.
- Unused annual leave and long service leave on termination aren’t OTE and don’t attract super, but they are taxed under separate rules from ETPs.
- ETPs have distinct PAYG withholding rates and reporting codes; get payroll and tax settings right before finalising.
- A clear process - review the contract, classify payments, calculate super and tax correctly, and document the exit - reduces risk and saves time.
- Strong foundational documents (Employment Contract, policies, redundancy and separation documents) make termination decisions more straightforward and compliant.
