Do you pay super on bonuses

one for both employers and employees. The Superannuation Guarantee (SG) legislation mandates that employers make contributions to their employees' superannuation funds. However, the specific types of payments that attract the SG can sometimes be complex. Generally, the SG applies to earnings that are considered 'ordinary time earnings' (OTE).

Understanding what constitutes OTE is key. OTE includes payments for the employee's ordinary hours of work. The definition is not always straightforward, and its important to clarify if bonuses fall under this category. The Australian Taxation Office (ATO) provides detailed guidelines, and the specifics can hinge on the nature of the bonus and how it is structured within the employment agreement. Essentially, ask yourself: is the bonus directly related to the employee's work and their ordinary time worked?

Factors Determining Superannuation on Bonuses

Several factors influence whether superannuation is payable on a bonus. These include the type of bonus, the terms of the employment contract, and the conditions under which the bonus is awarded. Regularly awarded bonuses, such as those based on performance metrics or sales targets achieved during standard working hours, are more likely to be considered OTE. Occasional or ad-hoc bonuses, or those given outside of the normal work schedule, may have different considerations.

Classifying Bonuses and Superannuation Obligations

The ATO assesses bonuses based on their relationship to an employee's work and whether they are a reward for services rendered. If a bonus is considered a reward for the employee's overall performance or productivity, it is generally included as OTE. Conversely, bonuses that are considered to be for other reasons, may not necessarily attract superannuation contributions. This has implications for how you classify and pay your employees, and also how you design your bonus structures.

For example, if a bonus is paid for extraordinary achievements or outside the scope of regular employment duties, it might not be considered OTE. However, it's really important to look at the specifics, and to ensure fairness across the entire team.

Types of Bonuses and their Treatment

• Performance-based bonuses linked to sales targets. Usually, these attract superannuation.
• Profit-sharing bonuses distributed to employees. Most likely, these trigger superannuation.
• Sign-on bonuses, awarded upon commencement of employment. Often, these attract superannuation.
• Bonuses given for achieving specific project milestones. Superannuation is generally applicable.
• Discretionary bonuses and one-off payments. These require careful assessment based on the specific circumstances and ATO guidelines.