How Employers Should Calculate Superannuation in Australia

Paying superannuation correctly isn’t just a box to tick - it’s a core employer obligation under Australian law. Getting the calculations right helps you avoid penalties, keeps your payroll clean and, most importantly, supports your people’s retirement savings.

In this guide, we’ll step through who you need to pay, how to work out Ordinary Time Earnings (OTE), what to include and exclude (bonuses, allowances, overtime and more), and a practical process you can follow each pay cycle. We’ll also cover deadlines, records, and common mistakes to avoid.

If you’re setting up payroll for the first time or you’ve inherited a system and want to check it’s compliant, this article will help you navigate the essentials with confidence.

What Is Superannuation And Who Do You Need To Pay?

Superannuation (super) is money you contribute to your employees’ nominated super fund in addition to their wages. The minimum you must pay is the Superannuation Guarantee (SG) percentage set by the government. From 1 July 2025, the SG rate is 12% of an employee’s OTE, with the rate reviewed periodically by law.

Who is entitled to super?

• Most employees, including full-time, part-time and casual staff.
• Contractors paid mainly for their labour (even if they have an ABN) may be deemed “employees” for super purposes.
• Employees under 18 are eligible if they work 30 or more hours in a week.

The former $450-per-month earnings threshold no longer applies. If someone meets the criteria above, they’re likely entitled to super.

Choice of fund and stapled funds

New starters can usually choose their fund. If they don’t, you must request their “stapled fund” (the fund linked to them by the ATO) and pay super to that fund. Only if there’s no stapled fund can you default to your compliant MySuper product.

It’s smart to reflect super obligations and the basis of remuneration clearly in each Employment Contract - for example, whether the salary is “plus super” or “including super”.

What Counts As Ordinary Time Earnings (OTE)?

OTE is the cornerstone of super calculations. In simple terms, it’s what an employee earns for their ordinary hours. The SG rate applies to OTE, not necessarily to every dollar paid.

In most cases, OTE includes base salary or wages for ordinary hours, shift loadings, most allowances that relate to work performed in ordinary hours, paid leave and certain commissions. Overtime payments (for hours beyond an employee’s ordinary hours) are generally excluded from OTE.

Because the details can be nuanced, it’s worth grounding your payroll rules in a clear understanding of Ordinary Time Earnings (OTE) and how it’s treated under awards or enterprise agreements that apply to your team.

Common inclusions in OTE

• Base pay for ordinary hours
• Shift loadings and most allowances paid for work performed (e.g. first aid, on-call, higher duties)
• Paid leave (annual leave, personal/carer’s leave, long service leave when taken as paid leave)
• Commissions tied to ordinary hours of work

Common exclusions from OTE

• Overtime payments specifically identifiable as overtime
• Expense reimbursements (e.g. travel reimbursement on proof)
• Redundancy payments and certain genuine termination payments
• Leave loading only in narrow circumstances where you can prove it is demonstrably a compensation for overtime

Tip: When in doubt, check what the payment is for. If it’s for work performed in ordinary hours or is a regular part of ordinary earnings, it likely belongs in OTE. If it’s compensation for working beyond ordinary hours, it’s likely excluded.

How To Calculate Super: A Step-By-Step Process

Here’s a practical workflow you can apply each pay cycle, whether you run weekly, fortnightly or monthly payroll.

Step 1: Confirm employment status and fund details

• Identify whether the worker is an employee for super purposes.
• Collect their fund details or request their stapled fund if none is provided.
• Make sure your payroll system has the correct SG rate and recognises award or enterprise agreement settings for ordinary hours.

Step 2: Determine ordinary hours and OTE

• Start with gross earnings for the period.
• Exclude payments that aren’t part of OTE (e.g. identifiable overtime, reimbursements).
• Include payments that do form part of OTE (e.g. paid leave, eligible allowances, shift loadings).

Step 3: Apply the SG rate

• Multiply OTE by the current SG rate (e.g. 12% from 1 July 2025).
• Be mindful of the quarterly “maximum contributions base” - above this cap, SG does not have to be paid. This cap changes annually, so set your payroll to update each financial year.

Step 4: Factor in salary sacrifice rules

• If an employee salary sacrifices into super, you must still calculate SG on the OTE “before” any salary sacrifice (this has been the law since 1 January 2020).
• Record any employee additional contributions separately from your SG contributions.

Step 5: Schedule and pay by the due date

• SG contributions are due quarterly (generally by the 28th of the month following each quarter). Many employers choose to pay super each pay cycle to stay on track and align with “payday super” reforms coming in 2026.
• Use a compliant clearing house and leave time for processing so funds reach the member’s account on time.

Step 6: Keep records and reconcile

• Keep evidence of OTE calculations, contribution amounts, dates, and fund confirmations.
• Reconcile your payroll and super clearing house reports each quarter to catch any gaps early.

Clarity at the contract stage helps avoid misunderstandings later. If your remuneration is expressed as a total package, consider how super will be calculated and show this clearly in the salary versus super wording.

Special Cases: Bonuses, Allowances, Overtime, Leave And Termination

Some payments generate recurring questions. Here’s how to think about common scenarios.

Bonuses and commissions

Generally, if a bonus or commission relates to performance during ordinary hours, it forms part of OTE and attracts super. If it’s a truly discretionary, one-off payment not tied to ordinary hours, the analysis can differ. When you structure incentive plans, plan how you’ll handle super on bonuses up front and reflect this in your payroll rules.

Allowances

• Included in OTE: Most work-related allowances for ordinary hours (e.g. first aid, leading hand, on-call, site allowance) are generally included.
• Excluded from OTE: Genuine expense reimbursements (with receipts) and some “expense” style allowances that are not for time worked (e.g. per-kilometre car allowance that reimburses cost) are typically excluded.

Pay attention to the purpose of the allowance and how it’s described in your award or agreement.

Overtime

Payments that are clearly identifiable as overtime (beyond ordinary hours) are generally excluded from OTE. If an allowance is specifically for overtime work, it will usually be excluded too.

Leave and leave loading

• Paid leave: Ordinary paid leave (e.g. annual leave, personal/carer’s leave) is usually part of OTE.
• Annual leave loading: Often included in OTE unless you can clearly demonstrate it is paid to compensate for overtime (a narrow exception). Keep documentation if you rely on this exception.
• Long service leave: When taken as paid leave, it’s typically OTE. When paid out on termination, the treatment may differ (see below).

Termination payments

Not all termination amounts attract super. Whether you must contribute depends on the nature of the payment (e.g. payout of unused leave, redundancy, notice, bonuses due, etc.). For a quick sense check, review when you need to pay super on termination payments and, where relevant, how payment in lieu of notice is treated.

When finalising an employee’s last pay, make sure your checklist covers wages, leave, deductions, super and any award obligations. It’s helpful to run through a final pay calculation process so nothing is missed.

Deadlines, Record-Keeping And Staying Compliant

Beyond calculating the right amount, paying on time and keeping clean records is critical.

Payment due dates

• SG must be received by the employee’s fund by the quarterly due date. The standard quarterly deadlines fall on 28 October, 28 January, 28 April and 28 July.
• Processing time matters. Paying on the due date through a clearing house can be too late - allow a few business days for funds to land.
• Many employers now pay super each pay run to reduce quarter-end pressure and support upcoming payday super requirements.

If you pay late

• You must lodge and pay the Superannuation Guarantee Charge (SGC). This includes the outstanding contributions calculated on salary and wages (not just OTE), nominal interest and an administration fee per employee, per quarter.
• SGC is not tax-deductible, whereas on-time super contributions usually are. Late payment gets expensive quickly.

Records you must keep

• Employee details, start dates, and fund elections or stapled fund confirmations
• Ordinary hours, OTE calculations, SG rate applied and contribution amounts
• Payment receipts and clearing house confirmations
• Award/enterprise agreement clauses and internal policies that affect OTE

Payroll systems and reviews

• Configure your payroll software to classify earnings correctly (ordinary hours vs overtime; allowances vs reimbursements).
• Update rates annually (SG percentage, maximum contributions base, award increases) and test after each update.
• Run a quarterly review report to catch anomalies (e.g. employees with OTE but zero super, or unusual negative adjustments).

Practical Tips And Common Mistakes To Avoid

Setting up strong foundations makes super compliance easier month after month. Here are practical ways to do that.

Get your remuneration wording right

Confusion often starts with how pay is described. If you say “$80,000 including super”, make sure you can show the super component and still meet the minimum SG on the correct OTE base. Align your offer letters and Employment Contract templates with your payroll settings.

Classify payments correctly

• Use payroll categories that reflect the actual nature of a payment (e.g. a separate pay item for identifiable overtime).
• For allowances, decide whether they are for hours worked (usually OTE) or for reimbursing expenses (usually not OTE) and name them accordingly.

Handle bonuses and commissions consistently

Document how you’ll treat incentives, and make sure plan rules align with Australian super law and awards. If in doubt about whether a particular incentive forms part of OTE, revisit your bonus policy before the cycle begins.

Don’t forget salary sacrifice rules

SG must be calculated on OTE before salary sacrifice. Configure your payroll to prevent SG being calculated on a reduced base when employees salary sacrifice into super.

Watch leave loading and long service leave

Leave loading is commonly included in OTE unless you can prove it compensates for overtime. Long service leave taken as paid leave is usually OTE, but lump-sum payouts on termination may be treated differently. Document your approach and keep evidence.

Review awards and agreements annually

Award changes can affect ordinary hours definitions, allowances and overtime classifications. Build an annual review into your HR calendar and test the impact in a sandbox payroll environment before you go live.

Align policies, contracts and payroll

Your internal policies, employee contracts, and payroll configuration should all tell the same story. Inconsistencies can lead to underpayments and increased risk.

Key Takeaways

• Super is calculated on Ordinary Time Earnings, not on every dollar paid - get your OTE classifications right from the start.
• The SG rate applies to OTE (12% from 1 July 2025) and must be paid to the fund by the quarterly due dates; paying each pay run can make compliance easier.
• Bonuses, allowances, leave and termination amounts each have specific rules - set clear payroll categories and document how you’ll treat each payment type.
• Salary sacrifice does not reduce the base for SG; configure payroll to calculate SG on pre-sacrifice OTE.
• Use clean employment documentation so remuneration (plus super or including super) is clear and consistent with payroll.
• If you pay late, the Superannuation Guarantee Charge applies and isn’t tax-deductible - prevention is far cheaper than remediation.

If you’d like a consultation on calculating and documenting superannuation for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.