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ATO decides ‘payments in lieu’ attract super

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Termination of staff is never an easy process for management. Where it is considered appropriate that an employee should finish up immediately rather than work out a notice period, entitlements to be paid must be correctly calculated. The process must be handled fairly to preserve the employee’s self-esteem and to minimise the risk to the company of litigation.

The recent Australian Tax Office Superannuation Guarantee Ruling 2009/2 means the ATO will treat payments in lieu of notice as ordinary time earnings (“OTE”) which means they require superannuation guarantee contributions to be paid.

The new ruling will take effect from 1 July 2009.

Under the current ruling, payments in lieu of notice are excluded from OTE. The payments were excluded because they relate to hours which were never worked by the employee.


A discretionary bonus or additional earnings paid as reward for good performance which are linked to work performed in ordinary hours are part of OTE and superannuation guarantee contributions are payable. This is in addition to changes that took effect from 1 July 2008 that provided that all performance based bonuses and commission are part of OTE.

In summary, employers should ensure that they are familiar with these changes which effect payroll administration and calculation of entitlements on termination of employment. Often ex-gratia payments are made on termination and the superannuation consequences must be considered.

If you are unsure of your obligations to employees on termination, we recommend that you contact us for advice before taking any action to discipline staff.

If you need further information on this topic, or if you require us to undertake an audit of your superannuation payments for staff, please do not hesitate to contact Mason Sier Turnbull’s workplace relations team.

Author: Richard Scougall