As an employer you may pay allowances to employees for various reasons. Allowances are payments made to recognize or compensate for certain conditions of employment or to cover expenses employees may incur. It’s essential to determine which allowances are subject to superannuation contributions and which are not as this impacts compliance with the Superannuation Guarantee (SG).
What is an allowance?
Many employees receive various additional payments that are described as allowances or loadings that are paid to employees to recognise or compensate for certain conditions relating to their employment.
As an employer you may provide allowances to employees for various reasons such as:
- Covering non-deductible expenses, like meals or snacks during normal working hours, travel between home and work
- Reimbursing work-related expenses, such as using their car for business or maintaining work-specific clothing (e.g. motor vehicle allowance, uniform allowance, or tool allowance)
- Compensating for work conditions, such as working in harsh environments (e.g. remote area, cold temperature, or broken shift allowances)
- Recognising special duties or skills, such as holding certifications or being on call (e.g. on-call, leading hand, or health and safety representative allowances)
Allowances differ from reimbursements, which cover actual expenses incurred by the employee typically supported by a receipt or invoice.
Superannuation and Allowances
Under Superannuation Guarantee Ruling SGR 2009/2, most allowances are subject to superannuation unless an exclusion applies as determined by the ATO. An allowance is not superable if the employer expects it to be fully expended on work-related expenses or if it relates solely to work outside ordinary hours.
Allowances related to ordinary hours of work typically fall under Ordinary Time Earnings (OTE) and require super contributions, whereas an allowance paid solely in relation to Overtime, such as an overtime meal allowance, is not OTE and not liable for superannuation.
Employers should carefully assess whether superannuation is payable on the allowances they provide. For example, a flat-rate car or phone allowance without a clear breakdown of business usage would likely be superable as the ATO may determine that it cannot be justified as being fully expended on work-related expenses.
Superable vs. Non-Superable Allowances
Here’s a breakdown of common allowances to help employers determine their superannuation obligations:
| Allowance Type | Superable (Yes/No) |
| Higher duties allowance | YES |
| Flat rate car allowance (no regard to expected costs) | YES |
| On-call allowance (paid during ordinary hours) | YES |
| Allowance for working conditions (shift, danger, site, etc.) | YES |
| Unconditional extra payment (employee discretion on spending) | YES |
| Allowance for private expenses (e.g. travel between home and work) | YES |
| On-call allowance (outside ordinary hours) | NO |
| Cents per kilometer car expenses (work-related travel) | NO |
| Expense allowance (expected to be fully expended for work) | NO |
| Overtime meal allowance | NO |
| Deductible tools expense allowance | NO |
| Laundry/dry cleaning for deductible clothing | NO |
| Domestic/overseas overnight travel allowance | NO |
Examples to Consider
Example 1: Unconditional Extra Payment
Julian, a marketing executive, receives a $500 monthly allowance for the purposes of entertaining clients in addition to his salary. He has full discretion over whether to spend the allowance, and it is paid regardless of actual expenses. The allowance is not paid for services provided by Julian only outside his ordinary hours of work. Therefore, the monthly payments are earnings ‘in respect of ordinary hours of work’ and are OTE.
Example 2: Expense Allowance Fully Expended
Matteo is a salesman. In addition to his usual salary, he is paid $300 per month to cover expenses he is expected to incur while visiting clients such as travel and mobile phone expenses. It is expected that Matteo will use the whole allowance in the course of visiting clients. The $300 allowance is not OTE because it is not a reward for Matteo’s services.
Conclusion It’s critical for payroll managers to correctly classify allowances to ensure superannuation obligations are met. Employers should thoroughly examine their allowances to ensure proper categorization and avoid potential compliance issues and super underpayments. If there is any doubt, consulting a payroll expert or legal advisor can provide clarity and ensure that allowances are managed appropriately. By adhering to these guidelines, employers can support their employees while fulfilling their superannuation requirements.