Superannuation in Australia is calculated primarily as a percentage of your ordinary time earnings (OTE). From 1 July 2025, the Superannuation Guarantee (SG) rate is 12%, meaning your employer must pay 12% of your OTE into your nominated super fund on top of your salary. But the full picture is more than a single percentage. It covers what counts as OTE, how contributions are taxed, how investment returns compound, and how fees quietly erode your balance over decades.
This guide breaks it all down in plain terms.
The Core Formula: How Your Employer Calculates Super
The basic calculation is straightforward:
Super Guarantee = Ordinary Time Earnings (OTE) x 12%
If your ordinary time earnings are $80,000 for the year, your employer must contribute $9,600 into your super fund. At the previous 11.5% rate (which applied in 2024/25), that same salary generated $9,200. The 12% rate is the final legislated target after more than a decade of incremental increases and is not scheduled to rise further under current law.
The SG is paid on top of your salary, not taken from it, unless your employment contract is structured as a total remuneration package that includes super within the stated amount.
Source: ATO: Super guarantee rates (Current as at May 2026)
Please note: All figures, examples and scenarios in this article are for general illustration only. Individual outcomes depend on personal circumstances, income, fees and investment returns. This is general information, not personal advice.
What Is Ordinary Time Earnings (OTE)?
OTE is the legal term that defines which part of your pay the 12% super calculation applies to. It is not the same as your total salary and wages.
Included in OTE:
- Base salary and regular wages
- Commissions and piece-rate payments for ordinary hours
- Shift loadings and rostered allowances tied to ordinary hours
- Most regular bonuses tied to ordinary work
- Casual loading
- Paid leave taken (annual leave, personal leave, long service leave)
- Most regular allowances (tool, uniform, car allowances paid for ordinary hours)
Not included in OTE:
- Overtime payments (the most commonly misunderstood exclusion)
- Overtime meal allowances
- Genuine expense reimbursements (travel, tools, phone)
- Termination payments such as redundancy pay and payment in lieu of notice
- Government-funded parental leave pay through Services Australia
- Workers’ compensation payments during incapacity
This distinction matters in practice. If you earn $100,000 in a year with $15,000 of that as overtime, your employer calculates super on $85,000 of OTE. The 12% applies to that lower figure, not your total gross pay.
There is also a maximum contribution base (MCB) of $62,500 per quarter for 2025/26. Employers are not required to pay SG on earnings above this threshold, though many do voluntarily.
Source: ATO: How much super to pay
Does Super Come Out of My Salary or on Top?
This is one of the most common questions, and the answer depends entirely on how your employment contract is worded.
Standard employment (“salary plus super”): Your employer pays your stated salary to you and pays 12% SG separately on top. The super is entirely the employer’s cost. A $80,000 salary means $80,000 to you and $9,600 to your super fund.
Total remuneration package: Some contracts state a total package inclusive of super. In this case your take-home pay is the package amount minus the super contribution. A “$110,000 package inclusive of super” means roughly $98,200 take-home pay and $11,800 to super.
If you’re unsure, ask your employer directly: “Is my super paid on top of my salary, or included in the total package?” The answer changes how you should think about your actual remuneration.
Do You Get Super on Overtime?
No. Overtime is excluded from OTE under the Superannuation Guarantee (Administration) Act 1992. Your employer has no legal obligation to pay the 12% SG on overtime hours.
Some enterprise agreements or employment contracts go further than the legal minimum and include super on overtime. Check yours if you regularly work significant overtime, because the difference can add up across a full year.
How Super Is Taxed: Three Rates to Know
Contributions tax: 15%
When employer SG or salary sacrifice contributions enter your fund, they are taxed at 15% as concessional contributions. For most Australians, this is well below their marginal income tax rate, which is the reason contributing more to super before tax is so effective.
LISTO for low income earners: If your income is $37,000 or below, the government effectively refunds the 15% contributions tax back into your super account via the Low Income Super Tax Offset (LISTO), up to a maximum of $500 per year. In practice, low income earners pay zero net tax on their employer contributions.
Division 293 for high income earners: If your combined income plus concessional contributions exceeds $250,000, an additional 15% tax applies to the portion of contributions that takes you over the threshold. The effective contributions tax rate becomes 30% on those amounts. Even so, 30% is still well below the 45% top marginal rate, so before-tax contributions into super remain worthwhile at high incomes.
Source: ATO: Tax on super contributions
Earnings tax inside the fund: up to 15%
Investment earnings inside your super fund during the accumulation phase are taxed at up to 15%. Two concessions reduce this rate in practice:
- Capital gains on assets held more than 12 months attract a one-third CGT discount, bringing the effective rate on long-term capital gains down to 10%
- Franking credits from Australian company dividends can offset tax payable by the fund, reducing the effective tax on Australian share earnings
This makes the super environment considerably more tax-effective than holding the same investments personally, where your full marginal rate applies to earnings and gains.
Tax on withdrawals: depends on your age
After age 60, withdrawals from a taxed super fund are completely tax-free, whether as a lump sum or income stream. Before 60, tax applies to the taxable component. See our guide to how to withdraw super in Australia for the full breakdown.
How Fees Affect Your Super Over Time
Fees are deducted from your balance or returns and compound against you in exactly the same way that investment returns compound for you.
A 0.5% fee difference on a $200,000 balance is $1,000 per year. Over 20 years at 7% returns, that extra $1,000 per year in fees compounds to roughly $43,000 in lost balance. On a $500,000 balance, the same maths produces $107,000 in lost retirement savings from a 0.5% fee difference.
Common fees include administration fees (fixed dollar or percentage), investment management fees (embedded in the returns figure your fund reports), advice fees if you use the fund’s advice service, and buy/sell spreads when switching options.
When comparing super funds, check the total annual cost in dollar terms for your balance level, not just the headline percentage. The government’s YourSuper comparison tool lets you compare fees and returns across funds in one place.
How Investment Returns Compound Your Balance
Super is not just a savings account. It is an investment account that compounds over decades, and the investment component of your final balance usually dwarfs the contribution component.
A practical example:
Someone earning $80,000 makes no extra contributions beyond the employer 12% SG for 30 years, with no salary increases. Total contributions: $288,000. At a 7% annual investment return compounded over that period, the balance grows to approximately $905,000. Nearly two-thirds of that final balance is investment return, not contributions.
This is why the investment option you choose matters. A high growth option holds more shares and property, with higher short-term volatility but stronger long-term returns. A conservative option holds more cash and bonds with lower volatility but slower growth.
As Scott covered in Episode 1 of the Wealthlab Podcast, the real-world difference between a growth portfolio returning 6 to 7% and a conservative one returning 3 to 4% is not just a few per cent. Over a long retirement, it can mean funds lasting into your late 90s versus running out 15 years earlier.
Check which investment option you’re currently in and whether it aligns with your age and years to retirement. Many Australians are in a default option that was never deliberately chosen.
Annual Contribution Caps
Two caps limit how much can go into super each year with concessional tax treatment.
Concessional contributions cap: $30,000 per year (2025/26)
Covers all before-tax contributions: employer SG, salary sacrifice, and personal contributions claimed as a tax deduction. If you exceed this cap, the excess is included in your assessable income and taxed at your marginal rate, less a 15% offset.
Non-concessional contributions cap: $120,000 per year (2025/26)
After-tax contributions from your own savings. No tax is payable on the way in. This cap applies unless your total super balance exceeds $1.9 million.
If you have not used your full concessional cap in previous years and your total super balance is under $500,000, you can carry forward unused amounts from the past five years and use them in a single year on top of the $30,000. This catch-up strategy is covered in Episode 7 of the Wealthlab Podcast.
Payday Super: A Major Change From 1 July 2026
From 1 July 2026, employers must pay SG contributions with every pay cycle rather than quarterly. Under the new Payday Super rules, contributions must reach your super fund within 7 business days of each payday.
For employees, this is a meaningful improvement. Super arrives in your account faster, starts compounding earlier, and the risk of underpaid contributions going unnoticed for months is significantly reduced.
For employers, compliance obligations increase. Late payments will trigger the Superannuation Guarantee Charge more frequently.
What If Your Employer Doesn’t Pay Your Super?
If your employer misses or underpays SG, they are liable for the Superannuation Guarantee Charge (SGC), which is more expensive than the SG itself: it includes the shortfall amount, 10% annual interest, and an administration component. Unlike regular SG payments, the SGC is not tax-deductible.
You can check whether your employer is paying correctly by logging into myGov and reviewing the ATO super section, which shows contributions received from each employer in the current financial year.
If contributions are missing, report it to the ATO at ato.gov.au. They will investigate and recover unpaid super plus interest on your behalf.
Ways to Boost Your Super Beyond the Employer Minimum
Salary sacrifice: Direct part of your pre-tax salary into super. Taxed at 15% inside the fund rather than your marginal rate. The tax saving is immediate and the extra contributions compound over time. For most Australians earning above $45,000, this is the most effective regular contribution strategy available.
Personal after-tax contributions: Contribute from your own bank account after tax. Gets more money into the tax-advantaged super environment without a direct tax saving on the way in, but investment earnings are then sheltered at the 15% fund rate.
Government co-contribution: If your income is below $58,445 and you make a personal after-tax contribution, the government may contribute up to $500 into your super. For incomes under $43,445, a $1,000 personal contribution triggers the full $500 co-contribution.
Spouse contributions: If your partner earns under $37,000, contributing to their super may entitle you to a tax offset of up to $540. One strategy for addressing the super balance gap between partners.
For a full picture of contribution strategies, see our superannuation advice page.
Frequently Asked Questions
What is the superannuation guarantee rate in 2025/26?
12% of ordinary time earnings, effective from 1 July 2025. This is the final scheduled rate under current legislation and is not set to increase further.
Is super calculated on gross or net pay?
Super is calculated on your gross ordinary time earnings before income tax is deducted.
Does my employer pay super on overtime?
No. Overtime is excluded from ordinary time earnings under superannuation law. Some enterprise agreements go further and require super on overtime, so check your specific contract.
How is super calculated for casual employees?
The same way as permanent employees. Casual loading is included in OTE. If a casual employee earns $35.33 per hour total including loading and works 20 ordinary hours, their super is 12% of their total pay for those hours.
What is LISTO?
The Low Income Super Tax Offset. If your income is $37,000 or less, the ATO calculates the 15% contributions tax on your concessional contributions and pays an equivalent amount back into your super, up to $500 per year. Low income earners effectively pay zero net tax on employer contributions.
How much will my super be worth at retirement?
It depends on your salary, years of work, investment option, fees and any extra contributions. The free Wealthlab super calculator lets you model your own numbers in a couple of minutes.
What if my employer hasn’t been paying my super?
Check your contributions through myGov. If SG payments are missing, report them to the ATO. Your employer is liable for the Superannuation Guarantee Charge, which includes the unpaid amount, interest and an administration component. The ATO will recover the funds on your behalf.
How does Payday Super change things from July 2026?
From 1 July 2026, employers must pay SG contributions every pay cycle rather than quarterly. Your super arrives faster, compounds for longer, and underpayments become easier to spot quickly.
See Where Your Super Stands Right Now
Understanding how super is calculated is the starting point. Knowing whether your balance is on track for the retirement you want is the next step.
Use the free Wealthlab super calculator to compare your balance against Australian averages for your age and see how your projected retirement income stacks up against the ASFA comfortable retirement standard.
Or book a free chat with the Wealthlab team to talk through how to make your super work harder before retirement.
