A popular question we are asked is “How do I calculate my employee’s final pay?”.
This is a good question which can often be incorrectly processed.
By way of background, Superannuation Guarantee is payable on any ordinary time earnings. There is often confusion surrounding what is classified as ordinary time earnings on termination pay. Generally, Annual Leave falls under the definition of ordinary time earnings. The exception to this rule is when it forms part of a lump sum payout upon termination.
SGR 2009/2 defines ordinary time earnings. Specifically paragraph 10(a)(i) “…Earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment: a payment in lieu of unused sick leave; an unused annual leave payment or unused long service leave payment within the meaning of the Income Tax Assessment Act 1997.”
Further in paragraph 24 of this ruling, unused sick leave, annual leave and long service leave are specifically excluded from the definition of ordinary time earnings.
When you’re next calculating an employee’s final pay, make sure you don’t classify unused annual leave as ordinary time earnings.
Please note that this advice is only general in nature and may not suit your exact circumstances surrounding employee termination.
For further information, see the ATO’s website: https://www.ato.gov.au/law/view/document?DocID=SGR/SGR20092/NAT/ATO/00001&PiT=99991231235958 .
If we can be of any further assistance, please don’t hesitate to contact our office Camden (02) 4655 7711 or Wollongong (02) 4210 6030.