Bonuses, Annual Leave Loading & Superannuation

Bonuses

Bonuses are generally extra payments awarded to employees at the employer's discretion, recognising their performance over a certain period. They are an excellent means of expressing gratitude to staff and can help motivate them for the upcoming year while also aiding in the retention of valuable employees. Offering bonuses can also set you apart from competing businesses.

However, when deciding to offer a bonus, employers must take into account other considerations such as PAYG Withholding, Superannuation Guarantee, and related on-costs.

PAYG Withholding

Similar to other payments to employees, PAYG Withholding is required for bonuses and can be calculated using two methods: Method 'A' and Method 'B'. Accounting software can assist in this calculation, ensuring accurate withholding.

Information on these two methods (including calculation methodology) can be found on the ATO website here.

Superannuation Guarantee

Bonuses, which are categorized as 'ordinary times earnings,' are subject to Superannuation Guarantee at the rate of 11.5% for the 2025 financial year. (Note: There is a special caveat where a bonus in respect of overtime only is not considered ordinary times earnings, and superannuation guarantee is not applicable to the payment.)

On-Costs

Considering on-costs like workers' compensation insurance and payroll tax, employers should note that bonus payments contribute to overall 'wage' figures for assessing annual premiums.

Annual Leave Loading

Leave loading refers to an additional payment employees may receive during the pay period that they take annual leave. Calculated at around 17.5% of an employee's base rate of pay, eligibility and rates are determined by awards, agreements, or contracts.

Similar to bonuses, leave loading is considered 'ordinary times earnings,' subject to Superannuation Guarantee. Further, leave loading contributes to the overall ‘wage’ figures for the purposes of assessing the annual premium/liability for workers compensation insurance and payroll tax. (Note: There is a special caveat where annual leave loading that is clearly linked to a lost opportunity to work overtime is not considered ordinary times earnings, and superannuation guarantee is not applicable to the payment.)

Superannuation

In most cases, Superannuation Guarantee applies to bonuses and leave loading. However, if an employer plans to make additional superannuation contributions beyond the required amount, it falls under 'reportable super.' This isn't treated as assessable income for the employee, and employers can claim a deduction.

It's important to note that superannuation payments, whether Superannuation Guarantee or reportable super, contribute to overall 'wage' figures for workers' compensation insurance and payroll tax assessments.

Conclusion

While bonuses are an excellent way to recognize and retain valuable staff, careful consideration is needed for the associated factors listed above. Similarly, annual leave loading should not be overlooked, as it can constitute a significant cost based on the number of employees and their accrued annual leave.

If you aren’t sure about the employee payment requirements above a chat with our team at BLG Business Advisers will guide you in the right direction. We can also put you in touch with associated specialists for assistance with the legalities. Our team are Wollongong Accountants who service right across Australia and there are many opportunities beyond what’s above to explore, so take some time to talk with us today.

Happy holidays!