Hot audit topics
At Accounting For Good, we always aim for a ‘no surprises‘ audit… and we are pretty happy with our track record of very few material adjustments across our client portfolio, so we don’t have a whole lot of surprising audit discoveries to report on.
But, we can tell you that some auditors were hot on a couple of topics this year – superannuation on leave loading and application of AASB 16 Leases. This month we explore the issue of ‘super on leave loading’.
The ATO has recently updated their guidance on how to treat superannuation guarantee contributions on leave loading, clarifying that annual leave loading – ‘in some circumstances’ – will be considered ordinary time earnings (OTE) unless it is referable to a lost opportunity to work overtime.
An ATO ruling in 2009 said that super…
“does not extend to extra payments by way of ‘leave loading’, and like payments, that are demonstrably referable to a notional loss of opportunity to work overtime,”
…and we can see that it is easy to apply the first part of that guidance without perhaps thinking too hard about the second part.
“We recognise that there has been uncertainty for employers in applying this view and determining if their annual leave loading is ‘demonstrably referable’. Most awards do not specifically state the reason the annual leave loading entitlement is provided.”
Many of our community services clients pay under the Social, Community, Home Care and Disability Services Industry (SCHCADS) Award and we know there are many more community services NFPs who have enterprise agreements that are based on or linked to the SCHCADS Award. The SCHCADS Award states that leave loading is “in addition to [their] ordinary pay,” but makes no comment on the application of super.
Are you compliant?
If you have not been paying super on leave loading… and in our experience many organisations do not… there are a few things you need to do to clarify your position and ensure you are compliant.
The past – review your policies, awards, contracts and any other documents or work practices that might support the basis for leave loading. If you assess that there is a clear link to a lost opportunity for overtime, then you have no obligation to pay super on leave loading, past or future.
If your documents and work practices don’t provide you with that clear reference, then now is the time to sort it out.
In good news, the ATO has stated that they will not be directing compliance resources to investigate past practices regarding super on leave loading if you have…
“self-assessed that annual leave loading was not OTE (as it was in place of the opportunity to work overtime)” and “there is no evidence (that is less than five years old) that suggests the entitlement was for something other than overtime.”
However, you do need to determine and document your position on leave loading for the future as the ATO’s position is that leave loading will be treated as Ordinary Time Earnings and subject to super unless there is a clear reference otherwise. That might mean updating your employment policies, contracts or enterprise agreement to provide clarity. You might even consider removing leave loading from your employment conditions and roll it into your pay rates. And if you assess that it isn’t current practice in your organisation to work overtime, and therefore no lost opportunity when on annual leave, you’d better update your payroll system to pay super on leave loading.
If you have any questions, please contact our team today.