As I have mentioned once or twice previously in monthly NW estimates, another 'asset' I have that I don't bother to include in my monthly NW estimates is my accumulated unused annual and long service leave entitlements. Any accrued amounts when I eventually resign/retire will be paid out using the current salary rate. I currently have balances of 1,076 hrs Annual Leave and 518 hrs of Long Service Leave. At my current hourly rate this is equivalent to roughly $91,572. One factor I was recently reminded about is that while annual leave and long service leave used during the normal course of employment are subject to the SGL (superannuation guarantee levy) which is currently 11.00% of salary, and will rise to 11.50% of salary from July 1 2024, and then the 'final' rate of 12.0% from 1 July 2025, any accumulated unused leave that is "paid out" upon resignation/retirement is NOT subject to SGL.
So, while I was initially planning to continue to just use public holidays and some portion (usually about two weeks) of my annual leave entitlement each year until retirement, and then retire at the start of a new FY (to minimize income tax on the final lump sum payment) and have all my unused leave "paid out", it might be better to instead take 3 months of long service leave at some point while still working, so I receive the additional 11-12% SGL. I will probably have to wait until I have a change of roles at work, as I currently do tasks that are required every week, and for whom no-one else has been trained to do in my absence. Apparently some of these tasks will be eliminated via automated processes during the next twelve months, at which time I may be assigned more of a project role involving Lean Six Sigma process improvement tasks. Which will probably allow more flexibility to take periods of annual of long service leave between 'projects'?
My company also has a policy to allow up to two weeks of accrued annual leave to be 'cashed out' each year, subject to approval by manager and HR. Due to my taxable income being significantly reduced due to negative gearing with my investment rental property, any 'cashed out leave' from 1 Jul 2024 (under the revamped 'stage 3' tax cuts) will be taxed at 30%, which would likely be the applicable tax rate if I instead accumulated more unused annual leave. While my pay rate is likely to increase roughly in line with CPI from now on, using the extra after tax payment to add to my mortgage offset account will effectively earn significantly more than the inflation rate. I also think that 'cashed out' annual leave will also be treated as normal salary and therefore benefit from receiving SGL contributions, adding another 11.5% or 12.0% in net financial benefit by 'cashing out' rather than being paid out upon retirement.
So it is probably a better financial decision to not accumulate any additional unused annual leave, but instead 'cash out' two weeks of annual leave each year, to maintain the current level of accumulated leave entitlement, and receive the extra SGL contributions into my superannuation savings.
I'll lodge an initial request to 'cash out' two weeks of annual leave, and if it is approved, confirm that there is a commensurate amount of extra SGL contributed into my company superannuation account that month.
** update: the annual leave 'cashout' was processed last week and the payslip confirmed that SGL was paid on the cashed out leave payment. So I'll continue to 'cash out' as much leave as possible each year from now on.
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2 comments:
My employer doesn't allow us to accumulate balances like that. In January, they
"rostered" me on leave to reduce the balance.... They are always freaking out about the supposed liability on their balance sheet...
In theory neither does mine -- but they haven't bothered to assign anyone else to be cross-trained to complete the weekly tasks I do, which are either business critical or have external client SLAs. So my manager doesn't pay any attention to accrued leave balances except when the HR department sends out an email to 'encourage' staff with more than 8 weeks accrued leave to take some time off work. They want you to take time off work, but expect the work to still get done when you aren't there ;)
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