Generally, super is paid on long service leave – but there’s a bit more to it. If you decide to take your long service leave during your employment, you'll be eligible for the Superannuation Guarantee (SG) contributions from your employer because it counts as qualifying earnings (QE). But if you choose to cash out your unused long service leave as a lump sum payment when your employment ends, you won't get SG contributions paid on that amount.
Long service leave scenario
Qualifies for SG contributions?
Taken as leave during employment
Yes
Taken as a lump sum payment when employment ends
No
What are qualifying earnings (QE)?
Qualifying earnings (QE) is a new term under Payday Super that brings together ordinary time earnings (OTE) and other payments such as commissions and eligible salary sacrifice amounts. Once Payday Super starts on July 1, 2026, super payments calculated from qualifying earnings sync up with salary and wages.
What makes up qualifying earnings?
Base salary and wages, ordinary hours of work
Salary sacrifice, which would have been considered ordinary hours prior to sacrifice arrangements
Commissions and bonuses, performance-based payments
Allowances, for skills, qualifications, or specific duties (e.g., first aid)
Paid leave, annual leave, personal leave, long service leave.
Visit the ATO website for more details on qualifying earnings for SG purposes.
Should I take long service leave as a lump sum payment?
It’s possible to take any unused long service leave as a lump sum payment at the end of your employment. But just because you can, doesn’t necessarily mean you should. What’s right for you boils down to your personal circumstances and financial goals.
Getting a lump sum could come with tax implications, which could reduce the amount that actually ends up in your pocket. If you want to know more, speak with a tax accountant, who can provide advice on your financial situation.
On the other hand, choosing a lump sum payment means you get access to a substantial amount of money at once. This can be particularly helpful if you’ve got a big-ticket expense planned, like going on an extended holiday, renovating your home, paying down your mortgage, or even starting a business. You could also use this lump sum to make a voluntary contribution to your super.
Qualifying earnings can include certain types of lump sum payments, paid leave, allowances and bonuses. There are instances where your employer will have to pay super on lump sums, though there are also some lump sums that do not qualify.
It’s important to think about your own situation and weigh up the pros and cons for each option before you make a decision.
What impact does super and long service leave have on retirement planning?
When you think about long service leave, you might be focused on the here and now. But for those who are nearing retirement age, there’s more to consider when deciding whether to use the long service leave while remaining employed or whether to cash it out.
Continue to build your super
If you take your long service leave as time off during your employment, your employer will continue to make contributions to your super. This means that, even as you're not actively working during this period, you're still building up your retirement nest egg with additional funds.
Now, you might be thinking: "I'm close to retirement, so how much of a difference can these additional super contributions really make?" While it's true that the impact might be less significant than for someone in their 30s or 40s, these contributions still matter. Every dollar counts, especially as these years may likely be your highest-earning ones. In the time leading up to retirement, maximising your super balance could help make a difference to your later years.
Potential tax benefits
One of the reasons why super can be a great way to save for retirement is because it can be tax effective. SG contributions made to your super fund by your employer are generally taxed at 15%, which is often lower than income tax rates. The same goes for your super investment earnings which are generally taxed at 15% while your account is in accumulation phase. On top of this, when you convert your account to an income stream, earnings within the fund are generally tax-free. However, if your annual income and concessional super contributions are above $250,000, there’s an extra tax charged at 15% of the excess over the threshold ($250,000) or the taxable super contributions, whichever is less. This is called the Division 293 tax1.
Importantly, once you reach the age of 60, withdrawing funds from your superannuation account is generally tax-free2. So, not only can you potentially build up more in your super thanks to the lower tax rate, but you generally also get to enjoy those savings without having to pay tax once you reach the age of 60. This could be a big one to think about if you’re aged 60-plus or close.
Need help deciding?
If you’re a Rest member, you can get simple personal advice from a Rest Adviser at no additional cost. For advice on more complex topics, like retirement planning, the cost will depend on the topic and your circumstances. We’ll always talk to you about any fees first.
1. If you are liable to pay Division 293 tax, the ATO will send you a notice and you can either pay this tax liability with your own money or release the amount from your superannuation account.
2. Provided the withdrawal does not contain an untaxed element within the taxable component.
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