As an employer, you may pay allowances to employees for a variety of reasons. Allowances are payments made to recognise or compensate for certain conditions of employment, or to cover expenses employees may incur in the course of their work. It’s essential to determine which allowances are subject to superannuation contributions and which are not, because getting this wrong has real compliance consequences under the Superannuation Guarantee (SG).
What is an allowance?
Many employees receive additional payments described as allowances or loadings – these are paid to recognise or compensate for conditions relating to their employment. As an employer, you might provide allowances for reasons including:
- Covering non-deductible expenses, such as meals or snacks during ordinary working hours, or travel between home and work
- Reimbursing work-related expenses, such as using a personal vehicle 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 and are typically supported by a receipt or invoice.
Superannuation and Allowances
Under Superannuation Guarantee Ruling SGR 2009/2, most allowances are subject to superannuation unless a specific exclusion applies as determined by the ATO. An allowance is not superable if the employer reasonably expects it to be fully expended on work-related expenses, or if it relates solely to work performed outside ordinary hours.
Allowances related to ordinary hours of work typically fall under Ordinary Time Earnings (OTE) and attract super contributions at the current rate of 12%. By contrast, an allowance paid solely in relation to overtime, such as an overtime meal allowance, is not OTE and is therefore not liable for superannuation.
Employers should carefully assess whether superannuation is payable on the allowances they provide. A flat-rate car or phone allowance, for example, would likely be superable if there’s no clear breakdown of business usage – because 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 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 incurred. The allowance is not paid for services provided only outside his ordinary hours of work. Therefore, the monthly payments are earnings ‘in respect of ordinary hours of work’ and are OTE – superannuation applies.
Example 2: Expense Allowance Fully Expended
Matteo is a salesperson. 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 costs. It is reasonably 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 – superannuation does not apply.
The Bottom Line
Correctly classifying allowances is one of those payroll obligations that’s easy to get wrong, and is costly when you do. Super underpayments attract the Super Guarantee Charge (SGC), which includes interest and an administration levy on top of the unpaid amount, and the ATO’s STP data matching means these errors are increasingly visible.
If you’re unsure how a particular allowance should be treated, the safest approach is to check it against the ATO’s SGR 2009/2, review your Award or Enterprise Agreement terms, and seek advice from a payroll specialist where needed.