Superannuation Explained: Essential Insights For Australian Employers

Superannuation is a core part of hiring in Australia. It supports your team’s long-term financial wellbeing and it’s a non‑negotiable legal obligation for employers.

If you’re setting up payroll for the first time, or you want to double‑check you’re paying the right amounts on the right earnings, this guide breaks down super in plain English so you can stay compliant and avoid costly mistakes.

Below, we explain what superannuation is, how the Superannuation Guarantee (SG) works, what counts as Ordinary Time Earnings (OTE), the common grey areas (like bonuses, overtime and contractors), and your payment and reporting duties.

General information only: This guide is for employers in Australia and is not financial or tax advice. Always get tailored advice for your situation.

What Is Superannuation And How Does It Work?

Superannuation is money you contribute to your employees’ super fund to help them save for retirement. In most cases, you must pay the Superannuation Guarantee (SG) - a minimum percentage of an employee’s OTE - into their nominated fund.

As at 1 July 2024, the SG rate is 11.5% of OTE and is legislated to increase to 12% on 1 July 2025. Rates can change over time, so it’s important to review your payroll settings each financial year.

As an employer, your core obligations are to:

• Offer eligible employees a choice of super fund (and use their stapled fund if they don’t choose).
• Calculate SG correctly based on OTE and pay on time (usually quarterly).
• Report via Single Touch Payroll (STP) and maintain accurate records.
• Apply the rules consistently for bonuses, allowances, overtime, contractors, staff under 18, and when employment ends.

Late or missed SG can trigger the Superannuation Guarantee Charge (SGC). SGC is more expensive than paying super on time and involves extra reporting to the ATO, so it’s worth getting robust processes in place early.

What Counts As Ordinary Time Earnings (OTE)?

OTE is the base you apply the SG rate to, so getting it right is essential. In general, OTE is what an employee earns for their ordinary hours of work - and excludes payments for overtime.

Typically, OTE includes base salary or wages for ordinary hours, shift loadings, most allowances that relate to ordinary hours, and paid leave that replaces ordinary hours (like annual leave and personal/carer’s leave). Genuine overtime is generally excluded.

Some pay items can be nuanced - for example, commissions, bonuses and leave loading can depend on how they are structured and why they’re paid. If you’re unsure about a specific item, it’s a good idea to revisit Ordinary Time Earnings and test your payroll categories against that framework.

What Do You Need To Pay Super On?

Most adult employees - and many contractors engaged principally for their labour - are entitled to SG. Super generally applies to the OTE portion of what you pay. Here’s how common pay items are usually treated and where employers often have questions.

Bonuses And Commissions

Most discretionary and performance bonuses that relate to ordinary hours form part of OTE, which means super is payable. The same usually applies to sales commissions linked to ordinary duties.

If your team earns incentive payments, make sure your payroll engine classifies them correctly and cross‑check your rules against guidance on super on bonuses.

Overtime

Genuine overtime - that is, pay for hours worked outside an employee’s ordinary hours - is generally not OTE and does not attract SG. It helps to define ordinary hours clearly in contracts and rosters so payroll can classify payments correctly.

Allowances And Loadings

Many allowances paid in respect of ordinary hours (such as a first aid allowance) are OTE. Reimbursements of expenses are generally not OTE. Leave loading is a common edge case: if it’s demonstrably linked to compensating for lost overtime, it may be excluded from OTE; if it’s an enhancement to ordinary pay, it may be included. If you pay leave loading, document the basis and apply your treatment consistently.

Paid Leave

Pay for annual leave, personal/carer’s leave and public holidays is generally OTE because it replaces ordinary hours. If you offer annual leave loading, consider the point above regarding whether it is tied to lost overtime or not.

Under‑18 Employees And Low‑Earning Periods

The $450 monthly threshold has been removed. However, for employees under 18, SG is generally payable only if they work 30 hours or more in a week. If you employ school students or casuals with limited hours, check eligibility each pay period.

Contractors (Deemed Employees)

Even if someone has an ABN and invoices you, SG can still be required if they’re engaged principally for their labour. This is a “deemed employee” situation for super purposes. Assess both the written agreement and the day‑to‑day working arrangement (who controls the work, whether they can subcontract, who provides tools, and how they’re paid). Clear contracts help, but the substance of the relationship matters most.

Salary Sacrifice And The SG Base

If your team salary sacrifices into super, be mindful of how it affects your SG calculations. From 1 January 2020, amounts salary sacrificed to super cannot be used to reduce the SG you must pay, and the SG must be calculated on the OTE base before deducting any salary‑sacrificed amounts to super. Configure these rules in your payroll system to avoid underpayments.

Paying, Reporting And Record‑Keeping Obligations

The “when” and “how” of paying super is just as important as getting OTE right. Build the following steps into your process.

Payment Timing And Clearing Houses

SG is generally due quarterly by the 28th day of the month after the quarter ends (e.g. 28 October for July–September). Funds need time to clear, so process payments early enough to reach the employee’s fund by the deadline.

Many employers use a super clearing house (including the ATO’s Small Business Superannuation Clearing House for eligible small businesses) to distribute contributions to multiple funds. Keep evidence of when you initiated payment and when the clearing house distributed funds.

Stapled Funds And Choice Of Fund

New employees can nominate their preferred fund. If they don’t, you’re required to request their “stapled” fund (the fund linked to them by the ATO) and pay SG into that fund. Keep records of your request, the ATO’s response and where payments were made.

Single Touch Payroll (STP) Reporting

Through STP, you report salary/wages and super information to the ATO each pay cycle. Make sure your software accurately reflects SG accruals, any salary‑sacrificed super and the fund details you’re using, so your reporting matches what you ultimately pay.

Record‑Keeping Essentials

Keep, at a minimum:

• Employment details (ordinary hours, classification, award or agreement coverage).
• Accurate payroll records for OTE, SG accruals and payments.
• Fund details, employee choices and stapled fund evidence.
• Quarterly payment confirmations and clearing house receipts.

Good records make audits smoother and help you resolve employee queries quickly.

Super In Contracts, Incentives And When Employment Ends

Your employment documentation should make super obligations clear and align with what your payroll system actually does. This reduces the risk of misunderstandings or underpayments.

Employment Contracts And Policies

Your Employment Contract should state whether salary is quoted inclusive or exclusive of super, how super is calculated, and when it’s paid. For roles with variable pay, specify how bonuses and commissions are determined and whether SG applies.

Internal payroll procedures and HR policies should mirror your contracts. If you collect personal information to administer payroll and super, make sure you maintain a compliant Privacy Policy that explains what you collect and why.

Bonuses And Incentives

When designing incentive schemes, build in the super treatment from the start. Clear rules about eligibility and timing (e.g. quarterly vs annual) make it easier to classify payments and pay SG correctly. As noted above, most bonuses tied to ordinary hours will attract super - you can sanity‑check your approach against super on bonuses.

Ending Employment: Final Pay And Super

When employment ends, you still need to pay super on any OTE in the final pay. However, a few important clarifications can save you from overpaying or underpaying:

• Unused annual leave paid out on termination is generally not OTE, so SG usually isn’t payable on that component.
• Genuine redundancy payments and other employment termination payments (ETPs) are not OTE.
• Payment in lieu of notice is generally not OTE and typically does not attract SG.

Double‑check common scenarios using guidance about whether you pay superannuation on termination payments, and keep a checklist for final pays so you don’t miss entitlements or misclassify pay items.

Awards, Enterprise Agreements And Contracts

Check the relevant modern award or enterprise agreement alongside the employment contract. Some instruments include specific terms about ordinary hours, loadings and allowances that influence OTE classification. Your contract should be consistent with those obligations.

Contractors And “Deemed Employees”

If you use contractors, decide whether super is required under the “principally for labour” rules. Assess the contract and the working reality (e.g. whether the contractor can delegate, who supplies tools, how they’re paid and supervised). Where super is payable, set up a process to collect fund details and include these payments in your normal SG cycle.

Compliance Risks And Practical Tips To Get It Right

Most super underpayment issues come from process gaps rather than bad intent. These steps help tighten your compliance and reduce risk.

• Define ordinary hours clearly. Align your contracts, rosters and payroll settings on what counts as ordinary hours vs overtime.
• Map every pay item to OTE rules. Create a simple matrix that classifies base pay, allowances, loadings, bonuses, commissions, reimbursements and termination items, with notes on whether SG applies.
• Automate in payroll. Configure your software to calculate SG automatically based on mapped pay items and set reminders for quarterly due dates.
• Use starter and leaver checklists. Include fund choice, stapled fund requests, final pay components and super treatment.
• Review whenever things change. If you add a new allowance, incentive or shift pattern, revisit how it affects OTE and SG.
• Keep evidence. Retain choice of fund forms, ATO stapled fund responses, STP reports and clearing house confirmations for audit readiness.
• Ask for advice on edge cases. Bonuses, leave loading, allowances, contractor arrangements and termination payments can be nuanced; getting them right upfront is far cheaper than fixing them later.

If you discover you’ve underpaid super, act quickly. Engage your adviser, calculate the shortfall and lodge any required SGC statements. Prompt corrective action can reduce penalties and protect trust with your team.

Key Takeaways

• Superannuation is mandatory for most employees in Australia, and it’s calculated on Ordinary Time Earnings - getting OTE right is essential.
• Most bonuses and commissions linked to ordinary hours attract super, while genuine overtime generally does not; document and classify pay items clearly.
• Pay SG by the quarterly due dates and keep strong records, including fund choices, stapled fund evidence, STP reports and clearing house receipts.
• Spell out super treatment in your documents - your Employment Contract and internal policies should align with what payroll actually does.
• When employment ends, remember that unused annual leave and many termination payments are not OTE; check whether termination payments or payment in lieu of notice require SG in your circumstances.
• Process discipline - mapping pay items, automating calculations and reviewing changes - is the best defence against super underpayments.

If you’d like a consultation about your superannuation obligations as an employer, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.