Private ruling: Superannuation guarantee working excess hours which do not attract overtime
Published: September 2013

Ruling: Q1: Are eligible employees entitled to superannuation guarantee in relation to hours worked in excess of ordinary hours, but which, by virtue of a flexibility agreement (the Flexible Agreement), do not attract overtime rates of pay. Advice Please see the reasons for decision.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice . · The employee's conditions are governed by an Award. · The Award contains provision dealing with the payment of overtime. · Consistent with the Award each employee enters into an Employment Agreement. · The Employment Agreement also defines the ordinary hours of work and overtime. · The employee enters into a Flexible Agreement by which they surrender certain pay and conditions for a higher general rate of pay. · One of the conditions surrendered is overtime rates of pay.

Relevant legislative provisions: Superannuation Guarantee (Administration) Act 1992, section 6 .

Reasons for decision: Summary: The focus of the definition of OTE in subsection 6(1) of the SGAA is upon the hours worked and not upon any special rates of pay received for excess hours. The employment agreement and IFA make it clear that the ordinary hours of work are 38 hours per week or an average of 38 hours per week over a four week cycle. If the employee is only involved in irregular and infrequent departures from these hours this will be the OTE of the employee for superannuation guarantee purposes. | Detailed Reasoning - Detailed reasoning: The Superannuation Guarantee Administrative Act 1992 (SGAA) places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees. The minimum level of support is calculated by multiplying the charge percentage by each employee's earnings base. From 1 July 2008, an employer must use ordinary time earnings (OTE) as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes. OTE is defined in subsection 6(1) of the SGAA. It is the total of earnings in respect of ordinary hours of work other than certain specified lump sum payments (i.e. a payment in lieu of unused sick leave). The earnings are capped at a maximum contribution base. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span of those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, SGR 2009/2 states that: 25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work… An employee's ordinary hours of work are usually the hours specified as their ordinary hours of work under the relevant award or agreement. This may not necessarily be the same as an employee's OTE. SGR 2009/2 states: 26. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are 'earnings in respect of ordinary hours of work'. This could in some cases be a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of the Ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement. SGR 2009/2 further explains: 204. It is not essential for the award or agreement to use the exact expression 'ordinary hours of work', but the instrument must disclose an intention to draw a genuine distinction between ordinary hours and other hours, which in particular would normally entail the other hours being remunerated at substantially higher (that is, overtime) rates. The Commissioner considers that this basic and widely understood distinction, in the industrial climate that prevailed in 1992, between ordinary time earnings and overtime earnings is what Parliament had in mind in enacting the OTE definition. 205. Thus, a clause merely prescribing a minimum or maximum number of hours of work over a given period is not the same as one prescribing ordinary hours of work, particularly if any further hours of work actually performed are to be paid at the same rate as the minimum or maximum hours. In this case the employee has traded certain overtime conditions for a higher general rate of pay. Under the Flexible Agreement the overtime rates of pay are surrendered in exchange for a general higher rate of pay. The effect of the Flexible Agreement on ordinary hours of work and overtime is that overtime rates of pay are no longer applicable. It is possible for the employee to work hours in excess of their ordinary hours. That is hours in excess of an average of 38 hours per week over a four week cycle. If this was to occur the employee would not be entitled to an overtime rate of pay. However, they would be entitled to additional salary and wages at the new higher pay rate under the Flexible Agreement. Wages must be paid weekly or fortnightly according to the actual ordinary hours worked each week or fortnight. The focus of the definition of OTE in subsection 6(1) of the SGAA is upon the hours worked and not upon any special rates of pay received for excess hours. The payment of overtime rates makes it easier to distinguish between ordinary hours of work and overtime but the fundamental question that still remains is whether the remuneration is in respect of ordinary hours of work. Both Agreements make it clear, that the ordinary hours or work are 38 hours per week or an average of 38 hours per week over a four week cycle. If the employee is only involved in irregular and infrequent departures from these hours this will be the OTE of the employee for superannuation guarantee purposes. The Flexible Agreement indicates that historically employees have only been offered minimal amounts of overtime. Once the overtime rates are removed by the Flexible Agreement there may be an inclination to extend on a regular basis the average hours worked by an employee. In determining the relevant OTE the Commissioner will look at substance over form (terms of the agreement). If an employee regularly works more than 38 hours per week or more than an average of 38 hours per week over a four week cycle and this situation develops into a consistent pattern the ordinary hours of work will be these extended hours.

This advice applies for the following period: 1 July 2013 - 30 June 2015