Accountant Warns of Superannuation Pitfall for Quitting Australian Workers

An accountant in Melbourne has advised Australian workers to prioritize using their annual leave before resigning from a position to avoid a potentially costly superannuation oversight. Adam Jacobson, principal accountant at Link Wealth Accounting, explained that annual leave paid out upon termination or resignation typically does not attract the mandatory employer superannuation contributions.

Jacobson stated that annual leave taken or cashed out during active employment is considered qualifying earnings, making it subject to the 12 percent super guarantee. However, he noted that accumulated leave paid out at the end of employment does not fall under this category, meaning employers are not legally required to pay super on those amounts.

To illustrate the financial impact, Jacobson provided an example of an Australian earning $100,000 annually with four weeks of accrued annual leave, valued at approximately $7,700. If this leave were paid out upon resignation, the individual would forgo roughly $923 in super contributions (12 percent of $7,700).

While cashing out leave during employment generally includes super contributions, Jacobson suggested that taking the leave before departing might be more advantageous. This is particularly true for individuals anticipating a pay raise, as cashing out leave at a lower rate could mean missing out on higher super contributions based on a future, increased salary.

Jacobson acknowledged that in certain situations, such as redundancy, employees may have no choice but to receive their unused annual leave as part of their final pay. In these cases, superannuation on that leave would not be paid. He recommended that employees always inquire with their employer about the possibility of cashing out leave and advised maintaining amicable terms when leaving a job.