Private ruling: Superannuation Guarantee - Ordinary Time Earnings
Published: August 2012

Ruling: Q1: Is the fares allowance, as provided for in the Award, included in ordinary time earnings (OTE) for superannuation guarantee purposes under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | A1: Yes, please see Explanation below.

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 employer's employees are employed under the Award. The employer requested a private ruling in relation to whether fares, as outlined in the Award, are included in the definition of OTE for the purposes of superannuation guarantee under subsection 6(1) of the SGAA. Clauses in the Award provide the following: The fares allowances are daily allowances where the employee is required to start or finish work at a job site and start or finish work at the usual times and uses his/her own vehicle or uses public transport. The fares allowances are not payable for any day on which the employee is absent from work for any reason (subject to other clauses in the award), or is required to start or finish work at the employer's workshop, yard or depot, or is provided with by the employer, or is offered to be provided with by the employer, accommodation that is located at the job site. The fares allowance is not payable for any day on which the employer provides, or offers to provide, the employee with transport from where the employee is living to the job site and return (including transport provided by the employer when the employee is working at a distant job site). The fares allowance is a flat rate per day. Employees transferred from one job site to another during ordinary working hours will, unless transported by the employer, be reimbursed the reasonable cost of fares by the most convenient public transport between such job sites. An employee who normally receives fares and/or travelling time is entitled to receive the relevant allowance/s for the rostered day off in their four week work cycle. The average ordinary hours worked will be 38 per week for a four week work cycle. Ordinary working hours will be worked in a 20 day, four week cycle, Monday to Friday inclusive, with 19 days of eight hours each, between the hours of 7.00 am and 6.00 pm, with 0.4 of one hour each day worked accruing to be paid as a rostered day off (RDO) in each cycle. Ordinary working hours are worked between 7.00 am and 6.00 pm Monday to Friday inclusive. The basis for payment for annual leave, including payment for untaken leave upon the termination of employment requires the employer to pay an additional leave loading of xx% of that payment, calculated on the rates, loadings and allowances prescribed by clauses in the Award relating to Minimum wages, All-purpose allowances and Fares and travelling time.

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 6(1). Explanation | The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base. | From 1 July 2008, an employer must use 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. | Definition of ordinary time earnings | Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean: | (a) the total of: | (i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment: | (A) a payment in lieu of unused sick leave; | (B) a unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997 ; (C) (Repealed by No 15 of 2007) | (ii) earnings consisting of over-award payment, shift loading or commission; | (b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the 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 those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, the ruling states that: | 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. There is no such thing as earnings that are merely in respect employment and are not OTE because they are not in respect of any particular hours of work. | 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 this 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. | Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless these are remuneration for overtime or other hours that are not ordinary hours of work. | Allowances | An allowance is a payment of a definite predetermined amount to cover an estimated expense. Generally it is paid regardless of whether the employee incurs the expected expense and the employee has the discretion whether or not to expend the allowance. | Paragraph 27 of SGR 2009/2 relates to certain specific kinds of payments that are OTE. Paragraph 27 states: | Many employees receive various additional payments that are described as allowances that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples: | · a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location; | · a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements; | · a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and | · a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities. | These kinds of payments are OTE except to the extent that they: | · are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses; or | · relate solely to hours of work other than ordinary hours of work. | Paragraph 65 of SGR 2009/2 relates to certain payments that are 'salary or wages'. Paragraph 65 states: | For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages' | Paragraphs 72 of SGR 2009/2 relates to expense allowances and reimbursements. Paragraph 72 and states: | Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services are not 'salary or wages'. | Paragraph 266 of SGR 2009/2 which is in the explanation states: | An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE. | Paragraphs 259 to 263 of SGR 2009/2 relate to allowances and reimbursements. These paragraphs state: | 259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances. | 260. In Mutual Acceptance , the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages' as defined the then Commonwealth Pay-Roll Tas Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses to be incurred by those employees. | 261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services: | … represents higher wages paid on account of special conditions, and may be fairly described as part of wages in the ordinary sense (emphasis added) | 262. Mutual Acceptance was relied upon in Road & Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936. | 263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'. | Therefore, in order for fare allowances to be deemed an expense allowance it is necessary to establish whether there is a reasonable expectation that the employee will fully expend the money in the course of providing services. If an allowance is paid unconditionally, that is regardless of whether the employee actually incurs the cost, it suggests that the allowance is not an expense allowance. For example, where an employee is paid the allowance regardless of whether they turn up to work the allowance would not be an expense allowance. | Application to your circumstances | The fares allowance that the employer is required to pay to its employees is provided for in the Award as a daily allowance that is payable when the employee is required to start or finish work at a job site, at their usual times, and uses the employee's own vehicle or public transport to get to the job site. | The fare allowance is not payable where the employee is absent from work for any reason, where the employee starts or finishes work at the employer's premises or is provided with accommodation or transport from where the employee is living to the job site. | The fares allowance is payable on a rostered day off, to an employee who would normally receive the allowance, even though the employee does not have to attend a job site. | The fares allowance is paid in relation to the employee's ordinary hours of work because it is paid where the employee commences or finishes work at their usual times. The fares allowance is paid at a flat rate per day. | When an employee is on annual leave they are paid a leave loading of 17.5% to compensate the employee for the notional lost opportunity to obtain the rates loading and allowances that they would be entitled to if they attended work. The fares allowance is specifically included in the 17.5% loading. | The fares allowance is paid to employees regardless of whether or not the employee incurred the expenditure. The fares allowance has the characteristics of an additional allowance that is paid to employees for their services. There is no requirement that the fares allowance relates to specific services rendered, as the payments are given as remuneration for services generally. | The fares allowance has no relationship to the actual costs incurred by the employees. An employee is entitled to receive the fares allowance for themselves and is free to spend as the employee wishes. Accordingly, the fares allowance is not a reimbursement and forms part of the salary and wages of the employee. | The fares allowance does not have the characteristics of an expense allowance because it is paid to employees unconditionally and regardless of whether the employee actually incurs the cost. In addition, it is paid to employees on a rostered day off where there is no requirement to attend a work site on that day and therefore no expense is incurred by the employee on that day but the fares allowance is still payable under the Award. | The fares allowances paid to employees of the employer are a reward for services they provide as an employee. The employer's employees are entitled to receive and keep the fares allowances regardless of whether they incur any expense in respect of the stated purpose of the fares allowance. Therefore, the fares allowance forms part of the salary or wages of the employee. The fares allowance is not paid for services provided by the employees outside of their ordinary hours of work. Therefore, the fares allowance in earnings 'in respect of ordinary hours of work' and are ordinary time earnings.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | This advice applies for the following period: For the period of operation of the Award.