Someone is on annual leave, and the pay run for that fortnight has one line in it that isn't there in an ordinary fortnight: annual leave loading. Payroll has worked out super on the wage underneath it. The question is whether the loading on top gets the same treatment, and it is the sort of question that gets settled once, by whoever set the software up, and then never revisited.
It is worth revisiting, because the default runs the opposite way to how most people read the payment, and because since 1 July 2026 the answer is applied every payday rather than once a quarter.
The default is that it counts
From 1 July 2026 the base for super guarantee is 'qualifying earnings', and the minimum is 12% of qualifying earnings for the pay period. The ATO's own summary of the leave loading rule is one sentence: annual leave loading is included in qualifying earnings unless it is clearly linked to lost overtime.
Its table of payment types, last updated on 2 September 2026, splits the same payment into two rows. 'Annual leave loading that is clearly linked to a lost opportunity to work overtime' is marked No — not ordinary time earnings, not qualifying earnings. 'Annual leave loading — all other' is marked Yes for both. There is no third row. If your loading is not in the first category, it is in the second.
That is the part that surprises people. The intuitive reading of leave loading is that it is a bonus, an extra, something outside ordinary pay — and therefore outside super. The ATO's reading is that it is related to annual leave, annual leave is paid for ordinary hours, and so the loading follows the leave unless something specific pulls it out.
The exception is an evidence test
The ATO does not ask what you believe the loading is for. It asks what you can show. To leave annual leave loading out of qualifying earnings you need written evidence that the loading is linked to a lost opportunity to work overtime, and it accepts two forms of it: the relevant award or agreement, or a documented policy, understood by you and your employees, that states the reason for the entitlement.
Its worked example is a business with two groups of staff under the same modern award. For the day workers the award gives both leave loading and paid overtime but does not clearly link them, so the employer writes a policy document setting out the historical reason for the loading, and gives a copy to the union representing the workers so the document reflects their understanding too. For the shift workers the award says the loading compensates for the lost opportunity to earn shift allowances — not overtime — and that loading stays inside qualifying earnings. Same employer, same award, two different answers.
If there is no written evidence, the ATO gives two options and no third: get the evidence as soon as possible, or start including the loading when you work out super. Continuing to leave it out while you think about it is not on the list.
The years already behind you
There is a concession for past periods, and it is narrower than it first sounds. The ATO says it won't review how leave loading was treated in previous periods where both of two things are true: you self-assessed that the loading wasn't qualifying earnings because it was for a loss of opportunity to work overtime, and there is no evidence that it was for something else.
Read the second condition the way it is written. It does not ask whether you had evidence supporting your position. It asks whether evidence exists pointing the other way — and an award clause saying the loading compensates for lost shift allowances is exactly that. Where it does exist, the ATO's position is that the loading should have been included, which means a shortfall and exposure to the super guarantee charge. The same document that decides the future decides the past.
Four rows people mix up
Casual loading is not annual leave loading and is treated as the opposite way round: it is qualifying earnings, full stop.
Annual leave and leave loading cashed out while the employee is still working for you is qualifying earnings. Unused leave paid out on termination — annual leave, annual leave loading and long service leave together — is not, and the ATO adds that this applies regardless of the reason for termination or how the payment is treated for tax.
Payment in lieu of notice goes the other way again. It sits in the same termination pay run, it looks like the same kind of payment, and it is qualifying earnings for all termination reasons.
Why it is live again this year
Two things changed the stakes. The first is timing: payday super started on 1 July 2026, so a classification error no longer sits quietly until the quarterly payment and gets fixed on the way through. It repeats every pay cycle.
The second is that the guidance is unfinished. The ATO finalised three of its payday super rulings on 5 August 2026 — LCR 2026/1 on application and transitional provisions, LCR 2026/2 on eligible contributions, LCR 2026/3 on the new super guarantee charge. The fourth, LCR 2026/D1 on qualifying earnings, is still a draft. The ATO's advice under development page, last updated on 7 September 2026, says finalisation is pending the outcome of the appeal process in Department of Education v Commissioner of Taxation [2026] FCA 898, with the Commissioner's views on that decision set out in an interim decision impact statement published on 5 August 2026.
The practical reading of that is not 'wait and see'. A case under appeal changes nothing about what you self-assess against today, and the published ATO position is unchanged. What it does mean is that anyone deciding to leave leave loading out of super on the strength of a headline about a court decision is taking a position the ATO has said it is contesting.
This is general information current as at 17 September 2026 and not advice about any particular employee or award. The useful next step is small and specific: open the award or agreement that covers your staff, find the leave loading clause, and read what it says the loading is for. If it says overtime, keep a copy with your payroll records. If it says something else, or says nothing, the ATO's answer is already decided and your payroll settings should match it. We have written separately about what payday super changed on 1 July 2026, including the seven business day deadline. Getting employee classifications and pay runs right sits inside business accounting, one of our four service areas — and it is considerably cheaper to fix in the payroll file than in a super guarantee charge statement.
Information on this site is general in nature and does not constitute tax, financial or legal advice. Consider your own circumstances or contact us before acting.