Is superannuation paid on termination payments?

Leaving your job? Learn more about the different types of employment termination payments and which ones could add to your super.

Hryshchyshen Serhii/Shutterstock.com

Leaving your job? Learn more about the different types of employment termination payments and which ones could add to your super.

While working, your employer has to pay a percentage of your salary into your super account. The amount required to be paid is based on your ordinary time earnings (OTE) – what you generally earned for your ordinary hours of work.

The Australian Taxation Office (ATO) says your OTE could still include payments such as for commissions, bonuses, allowances and annual leave. So, if you’ve resigned from your job or been made redundant, you may still be entitled to some money from your employer. Let’s take a close look at what super on termination payments can be made.

What is an employee termination payment?

An employee termination payment is a lump sum payment made to you when your employment ends. The employment could end for a number of reasons such as redundancy, dismissal, resignation or retirement.

According to the ATO, an ETP can include:

payment for unused sick leave or unused rostered days off

payment in lieu of notice (the employer doesn’t work a notice period but the Fair Work Ombudsman says an employer must pay the employee the amount they would have earned during the notice period)

a gratuity or ‘golden handshake’

compensation for loss of job or wrongful dismissal

genuine redundancy payment or early retirement scheme payment above the tax-free limit

certain payment made after the death of an employee

The ATO says an ETP doesn’t include:

a lump sum payment for unused annual leave or long service leave

the tax-free part of a genuine redundancy payment or early retirement scheme payment

superannuation benefits

a foreign termination payment.

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Is superannuation paid on employment termination payments?

Superannuation is generally not paid on most employment termination payments. An exception applies if your employer pays out a relevant notice period, as this becomes part of your ordinary time earnings.

The ATO does consider amounts paid on termination in lieu of notice as ordinary time earnings and super is payable on these amounts. A termination payment made in lieu of notice is just the ordinary amount you would have earned had your employment continued until the end of the notice period.

Whether your employer will make a lump sum payment instead of giving notice will generally be stated in the relevant employment award or agreement, or in the termination clause of your employment contract. It’s a good idea to check your paperwork, and check with your employer to see what you may be entitled to.

What termination payments don’t employers pay superannuation on?

There are a number of employment termination payments that don’t constitute towards your ordinary time earnings. Commonwealth superannuation law specifically excludes amounts of unused sick leave, annual leave and long service leave from an employee’s ordinary time earnings. The ATO also considers redundancy payments and payments for unfair dismissal are not ordinary time earnings. So superannuation on redundancy payments is not payable.

Again, you would be wise to check your employment agreement or contract to see what payments may be due to you on leaving your employment.

You should also consider any tax implications from receiving any employment termination payments. It might be a good idea to seek some independent professional advice. You may also be interested in checking out Canstars 2024 Superannuation Star Ratings and Awards for providers offering outstanding value.

Compare Superannuation with Canstar

The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 to 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then by 5 year return (highest to lowest). Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.

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11.5%

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Mercer Superannuation SmartSuper SmartPath - Born 1984 to 1988

$391

11.6%

10.2%

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Aware Super High Growth (Lifecycle investment)

$457

11%

10.1%

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$667

9.2%

10.1%

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AMP Super AMP MySuper 1980s

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11.9%

9.7%

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Performance, fee and other information displayed in the table has been updated from time to time since the rating date and may not reflect the products as rated.
The performance and fee information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
Performance information shown is for the historical periods up to 31/05/2024 and investment options noted in the table information.
Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here.
Performance data may not be available for some products. This is indicated in the tables by a note referring the user to the product provider, or by no performance information being shown.
Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.
Any advice on this page is general and has not taken into account your objectives, financial situation or needs. Consider whether this general financial advice is right for your personal circumstances. You may need financial advice from a qualified adviser. Canstar is not providing a recommendation for your individual circumstances. See our Detailed Disclosure.
Not all superannuation funds in the market are listed, and the list above may not include all features relevant to you. Canstar is not providing a recommendation for your individual circumstances.
Canstar may earn a fee for referrals from its website tables, and from Sponsorship or Promotion of certain products. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model. Sponsorship or Promotion fees may be higher than referral fees. Sponsored or Promotion products are clearly disclosed as such on website pages. They may appear in a number of areas of the website such as in comparison tables, on hub pages and in articles. Sponsored or Promotion products may be displayed in a fixed position in a table, regardless of the product’s rating, price or other attributes. The table position of a Sponsored or Promoted product does not indicate any ranking or rating by Canstar. For more information please see How We Get Paid.
Click here for additional important notes and liability disclaimer.

Performance and Investment Allocation Differences

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology.
Some providers use different age groups for their investment profiles which may result in you being offered or being eligible for a different product to what is displayed in the table. See here for more details.
Australian Retirement Trust Super Savings’ allocation of funds for investors aged 55-99 differ from Canstar’s methodology – see details here.
The Australian Retirement Trust Super Savings (formerly Sunsuper for Life) product may appear in the table multiple times. While you will not be offered any single investment option, this is to take into account the different combinations of investment options Australian Retirement Trust may apply to your account based on your age. For more detail in relation to the Australian Retirement Trust (formerly SunSuper for Life) product please refer to the PDS issued by Australian Retirement Trust for this product.
Investment profiles applied initially may change over time in line with an investor’s age. See the provider’s Product Disclosure Statement and TMD and in particular applicable age groups for more information about how providers determine their investment profiles.

Cover image source: Hryshchyshen Serhii/Shutterstock.com

This article was reviewed by our Editor-in-Chief Nina Rinella before it was updated, as part of our fact-checking process.

Mandy Beaumont

Former Content Lead

Former Content Lead, Mandy Beaumont, has had a long career in the publishing and university sector as an award-winning author, journalist and creative writing academic. She’s been a course convenor in creative writing and communications at Griffith University for more than a decade, holds a PhD and a master’s in creative writing from RMIT and QUT respectively, and has written for The Big Issue, Melbourne Writers Festival, the Australian Council of Trade Unions the Queensland Nurses and Midwives’ Union, as well as many other well-known newspapers and journals in Australia and overseas. Mandy’s short fiction writing and her novels have won, been shortlisted and longlisted for prestigious prizes and awards such as The Stella Award, the QLD Literary Awards, the Richell Prize, the Dorothy Hewitt Award and the MOTH International Short Story Award. Mandy released a new novel with one of Australia’s largest publishing houses, Hachette Publishing in early 2025 called The Thrill of It. After many years of working with trade unions and renting, Mandy has a keen interest in superannuation (particularly worker’s capital) and the housing market in Australia.