Is Super Payable on Bonuses? A Simple Guide for Aussie Business Owners

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Right, let's get straight to it. You've had a great year, a team member has smashed it out of the park, and you want to give them a bonus. But then the nagging question pops up: is super payable on bonuses?

In Australia, the short answer is usually no, especially for a one-off performance bonus.

But, like with most things from the tax office, there are a few curly bits. The whole thing hinges on a term you need to get your head around: Ordinary Time Earnings (OTE). This is the key to figuring out your super obligations and making sure a generous bonus doesn't accidentally chew through your profits.

The Simple Answer To Super On Bonuses

When you're running a business, the last thing you want is a headache over payroll. Thankfully, the rule for bonuses is simpler than it seems. It all comes back to that one concept from the Australian Taxation Office (ATO): Ordinary Time Earnings (OTE).

Think of OTE as the normal, regular pay an employee gets for their standard hours. It’s their base wage or salary. Super is always calculated on this figure.

So, when you ask if super is payable on a bonus, what you're really asking is: is this bonus considered OTE?

Here’s a practical way to break it down, like explaining it to a mate:

Is the bonus for their normal work? If a bonus is directly linked to an employee hitting targets during their standard 9-to-5, it starts to look a lot like OTE.

Is the bonus for something extra? If it’s a reward for exceptional performance over the year or for a specific, one-off achievement that goes above and beyond, it’s generally not considered OTE.

Most performance bonuses fall into that second category. They’re for outstanding work that isn't part of the everyday grind. Because of this, they sit outside the OTE definition, meaning you typically don’t have to pay super on them.

But be careful—as we'll cover later, what's written in an employment contract can change everything.

Getting this right is critical. It’s not just about staying on the right side of the ATO; it’s about knowing the true cost of rewarding your team. Miscalculating these on-costs can silently destroy your profit margins. It's one of those classic hidden costs that sole traders forget when pricing jobs.

What Exactly Are Ordinary Time Earnings (OTE)?

Alright, let’s demystify the most important three-letter acronym in the world of super: OTE, or Ordinary Time Earnings. Nailing this concept is the key to figuring out whether super is payable on bonuses.

Think of OTE as the bedrock of your employee's pay. It’s what they earn for their normal, everyday hours of work. It’s their standard wage for a standard week, plain and simple.

OTE is Your Foundation

Imagine you're building a house. The concrete slab you pour first is the foundation—solid, predictable, and everything else gets built on top of it. In the world of payroll, OTE is that concrete slab. The Superannuation Guarantee (SG) is calculated on this reliable base.

The stuff that’s almost always part of the OTE foundation includes:

An employee's base salary or hourly wage.

Certain allowances, like a shift loading for regular night work.

Commissions that are a standard part of their sales duties.

This idea is critical because it helps you draw a clear line between 'everyday' pay and 'extra' pay.

What Sits Outside of OTE?

Now, think about what you add to the house after the foundation is set—the walls, the roof, maybe a fancy deck out the back. These are like payments that sit outside of OTE. The most common one for any small business owner is overtime.

If your employee pulls extra hours on a weekend to get a job over the line, that overtime pay isn't part of their 'ordinary' hours. Because of that, it’s not OTE, and you generally don’t pay super on it.

This exact same logic applies to most performance bonuses.

A bonus is typically a reward for going above and beyond, not for just showing up and doing the standard job. It’s the 'extra' you give for exceptional results, placing it firmly outside that OTE foundation.

The official definition of 'ordinary time earnings' under the Superannuation Guarantee (Administration) Act 1992 generally excludes payments that aren't for ordinary hours, which is why most bonuses fall outside its scope. The super system in Australia has evolved a lot, and this distinction has remained a core principle. You can explore more on the history of superannuation changes in Australia.

When You Must Pay Super on a Bonus

This is where things can get a bit tricky. The general rule is that one-off performance bonuses are exempt from super, but there are a couple of crucial exceptions. Knowing them is key to staying compliant and avoiding a nasty surprise from the ATO down the track.

The real question isn't just about the bonus itself, but the reason for it. If it's directly tied to an employee's performance during their ordinary hours of work, it’s a different story.

This picture helps show when a payment is part of an employee's regular earnings versus when it's an extra, like overtime or a typical bonus.

As you can see, the critical split is whether the payment relates to an employee’s standard, regular hours.

Bonuses Linked to Ordinary Hours

Let’s say you have a team member who works a standard 38-hour week. You offer them a bonus for hitting a specific weekly production target—a target they are expected to meet within those normal hours.

In this scenario, the ATO would almost certainly see that bonus as part of their OTE. Why? Because it’s not for extraordinary effort outside their normal job; it's a reward for performance within it.

Key Takeaway: If a bonus is an incentive for performance during an employee's regular work week, you should plan on paying super on it. It’s no longer a one-off reward; it becomes part of their expected earnings.

When Your Contract Changes the Rules

The other major exception is something you have direct control over: your employment agreements.

The rules set by the ATO and Fair Work act as a baseline. But if your employment contract explicitly states that superannuation is payable on all bonuses, then that's what you must do. The contract becomes a legally binding promise.

This is a detail that can be easily overlooked but has big financial implications. A poorly worded clause can turn a generous gesture into a much larger expense, impacting the profitability of your projects. It’s a good reason to be crystal clear when drafting agreements and understand all your overheads and on-costs before you commit.

These exceptions are exactly why it's so important not to assume all bonuses are super-free. The specifics of the bonus and the wording of your contracts are what truly determine your obligations.

How to Correctly Calculate Super on Bonuses

So, you’ve worked out that a particular bonus does attract super. What’s next? Don’t stress, the calculation is more straightforward than you might think.

This isn't about becoming an accountant overnight. It’s about having a clear, repeatable process to make sure you're paying the right amount, keeping the ATO happy, and most importantly, understanding the true cost of rewarding your team.

A Simple Step-by-Step Calculation

The process is simple: you just add the bonus amount to the employee's OTE for that pay period, then apply the current Superannuation Guarantee (SG) rate to the new total.

Let’s run through an example. Say you have an employee, Dave, who earns 500 bonus this week that's tied to his ordinary hours, so it needs super paid on it.

Combine the OTE and the Bonus: First, add the bonus to his regular pay to get the total figure for super calculation.

500 (Bonus) = $2,000 (Total earnings for super)

Apply the Super Rate: Next, multiply this new total by the current SG rate. We’ll use 12% for this example.

240**

For that week, you would need to contribute **180 ($1,500 x 0.12). Simple as that.

Watch Out for the Maximum Contribution Cap

One final thing to keep in mind is the maximum super contribution base. The ATO sets a quarterly limit on an employee's income that you need to pay super on. If an employee's total earnings, including a big bonus, push them over this cap for the quarter, you don’t have to pay super on the amount above the limit.

It's a small detail, but it can make a big difference with large performance bonuses.

Understanding these costs upfront is vital for pricing your jobs correctly. A small miscalculation in labour on-costs can easily turn a profitable job into a loss-maker.

For instance, the Profit Calculator lets you model different labour costs, including bonuses and super, so you can see exactly how they affect your profit margin before you even send a quote. It gives you a clear, visual breakdown of every cost component.

This kind of visual breakdown stops you from undercharging by making sure every single cost is accounted for. While most bonuses don't require super, many employees are now looking to direct these funds into their super via salary sacrifice, which is driving up employer super contributions nationally. Recent stats show employer super contributions are on the rise, partly due to SG rate increases and employment growth, but also reflecting these voluntary arrangements. You can explore more superannuation trends on the APRA website.

Ready to see how these costs impact your bottom line in real-time? You can sign up and start modelling your own scenarios here.

How Bonuses Impact Your Business Profitability

Paying a bonus feels great. It’s a powerful way to reward your team for a job well done. But here’s the thing: a bonus isn't just a reward; it’s a business expense, and one that can have a ripple effect on your profitability if you’re not careful.

Many sole traders and small business owners fall into a classic trap. They price a job based on the obvious costs—wages, materials, the usual suspects—but completely forget about the hidden extras. These are the sneaky on-costs and overheads, like potential super contributions, that can silently eat away at your profit margin.

From Guesswork to Genuine Profit

This is why understanding all your costs is non-negotiable for running a healthy business. It’s the difference between thinking a job is profitable and knowing it is. This is where you need to get familiar with your Effective Hourly Rate (EHR)—the true cost to your business for every hour an employee works.

Your EHR isn't just their wage. It's the whole package, including:

Superannuation

Workers' compensation

Leave entitlements

A slice of your business overheads

When you offer a bonus, you need to factor that into your job costing. Even if super isn't payable, the cost of the bonus itself still needs to be absorbed. Getting this wrong is how you end up busy but broke.

Knowing your numbers is vital for accurate quoting and confident pricing. It stops you from undercharging and ensures every single job you take on is actually making you money.

This is exactly where a tool like the Profit Calculator becomes your best mate. It’s designed to help you model these exact scenarios. You can plug in your wages, add a potential bonus, and instantly see the impact on your profit margin. It takes the guesswork out of job costing, letting you price your services with complete confidence.

Common Questions About Super on Bonuses

Right, let's tackle some of the common questions that pop up when you're trying to get this right. Getting your head around the rules is one thing, but applying them to real-world scenarios is where the confidence really comes from.

Here are some clear, direct answers to help you navigate those tricky situations.

What is the Difference Between a Commission and a Bonus?

This is a big one, and it’s easy to get them mixed up.

Generally, commissions are considered Ordinary Time Earnings (OTE) because they're directly tied to an employee's regular performance and the hours they work. Think of a salesperson who earns a percentage of every sale they make during their normal week. Super is almost always payable on commissions.

A performance bonus, on the other hand, is often for a one-off, exceptional achievement that sits outside their day-to-day duties. That’s why it’s usually not seen as OTE, and super isn't required unless your employment contract specifically says it is.

What if I Have Made a Mistake and Underpaid Super?

First off, don't panic. It happens. The most important thing is to fix it as soon as you realise there's an issue.

You'll need to lodge a Superannuation Guarantee Charge (SGC) statement with the ATO. This process involves paying the super you missed, plus interest and an administration fee. Acting quickly is your best move here, as it can help minimise any penalties. If you're unsure, it’s always a good idea to have a chat with your bookkeeper or accountant. For those who provide professional advice, our resources for advisors can offer further guidance on helping clients navigate these complexities.

Do I Pay Super on Non-Cash Benefits Like Gift Cards?

Good question. No, you don't.

The Superannuation Guarantee only applies to salary and wages that fall under the OTE definition. A non-cash benefit—like a gift card, a Christmas ham, or a fringe benefit—isn't considered part of an employee's salary or wage for super purposes.

How Can I Easily Track These Costs to Protect My Profit?

The best way is to stop guessing and start measuring. Relying on gut feel is a surefire way to undercharge and leave money on the table, especially when dealing with variable costs like super on bonuses.

Using a tool specifically designed for service businesses is the answer. It lets you plug in all your costs—wages, potential bonuses, super, and all your overheads—to see the true profit on every single job. It takes the mystery out of your numbers and helps you calculate your true Effective Hourly Rate, so you can finally price your services with confidence.

ProfitCalculator.com.au is built to give you that clarity. It shows you the real numbers behind every quote, so you can stop guessing and start running a stronger, more profitable business.

👉 Ready to improve your profitability? Try the Profit Calculator free at profitcalculator.com.au