What You Actually Pay Super On: Understanding Qualifying Earnings
Superannuation is not simply 12% of everything you pay an employee. It is calculated on a specific slice of their earnings, and understanding where that legal boundary sits is where many payroll compliance errors begin.
With the rules shifting under Payday Super, it is worth reviewing your pay categories to ensure your software mappings are correct.
The Shift from OTE to Qualifying Earnings (QE)
Until recently, the Superannuation Guarantee (SG) was calculated strictly on Ordinary Time Earnings (OTE).
Under Payday Super, calculations moved to Qualifying Earnings (QE). While Qualifying Earnings is built on the same core principle as OTE, it captures a slightly broader range of payments.
For most small businesses with standard salary and wage arrangements, the resulting calculation is identical. However, the distinction becomes critical if your business pays sales commissions, processes salary sacrifice arrangements, or engages contractors paid mainly for their labour.
What Is Included in Qualifying Earnings?
Base Salary & Ordinary Hours: Standard wages and salary paid for ordinary hours of work.
Paid Leave: Most paid leave taken during ordinary hours, including annual leave, personal or carer's leave, and long service leave.
Loadings & Penalties: Casual loading, shift penalties, and public holiday loadings earned during ordinary hours.
Allowances: Most work-related allowances tied to ordinary hours or duties (such as first aid, tool, or on-call allowances).
Bonuses: Performance or sales bonuses linked to ordinary time work.
All Commissions: Under QE, all commissions paid to an employee are included. This is a key update: previously, commissions paid solely for work done entirely outside ordinary hours sat outside OTE. They are now captured under QE.
Salary Sacrifice Amounts: Pre-tax salary sacrifice contributions that would have qualified as QE had they not been sacrificed into superannuation.
What Is Excluded from Qualifying Earnings?
Overtime Payments: Hours worked outside ordinary hours do not attract superannuation, even though they are part of gross earnings. This remains the most common point of confusion.
Expense Reimbursements: Genuine work-related expenses reimbursed to an employee.
Unused Leave Payouts on Termination: Unused annual leave and unused long service leave paid out as a lump sum upon termination of employment.
The "Ordinary Time Earnings" Confusion
Part of the reason for the transition to Qualifying Earnings was the historical confusion surrounding the phrase "ordinary time earnings."
Previously, the ATO and the Fair Work Ombudsman maintained slightly different interpretations of what constituted ordinary time earnings for tax calculations versus Modern Award entitlements (such as leave loading). The introduction of Qualifying Earnings as a distinct term helps eliminate that regulatory crossover.
Why Getting the Earnings Base Right Matters More Now
Under the former quarterly contribution system, minor calculation errors could often be identified and reconciled before quarterly reporting was finalised.
Under Payday Super, superannuation contributions must be paid at the same time as wages, reaching the fund within seven business days of payday. Furthermore, Qualifying Earnings amounts are reported directly to the ATO via Single Touch Payroll (STP) on every pay cycle.
An error in mapping pay codes inside your accounting software is now reported directly to the ATO every fortnight. Ensuring your earnings base is configured correctly is critical to maintaining a compliant payroll system.
Recommended Next Steps
The ATO maintains a comprehensive checklist of payment types detailing what attracts superannuation and what is excluded. It is a valuable reference to keep on hand when configuring new pay items in software like Xero or MYOB.
Unsure If Your Payroll Software Maps Super Correctly?
If your payroll involves complex allowances, sales commissions, or contractor arrangements, auditing your software mappings will protect you from automated compliance flags.
Book a free 30-minute intro call with Simply Secretarial today to review your payroll configuration and back-office setup.
Disclaimer: This article provides general administrative and superannuation information current at the time of writing. It does not constitute formal tax or accounting advice. Superannuation rules depend on specific employment arrangements and payment types. Always verify details with the ATO or a registered tax agent.
