Private ruling: Ordinary times earnings and accumulated days off
Date of advice: 15 November 2018
Published: February 2019
Ruling period: 1 July 2018 – 30 June 2019

Ruling: Q1: Is a lump sum payment for accumulated days off (ADO), made on termination of employment, considered ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)? | A1: No. | Q2: Is the payment of a Ship Repair and Ship Building cash allowance for employees under the Agreement part of OTE for the purposes of subsection 6(1) of the SGAA? | A2: Yes.

Relevant facts and circumstances: 1. Employees of the Employer are covered by Agreements. 2. The Agreements state that the ordinary working hours for employees are 38 hours per week. 3. Employees work eight ordinary hours of work per day. An employee accrues one ADO for every four weeks where that employee works 152 hours during a 19 day period. 4. The Agreement provides Employees an entitlement to the payment of a weekly Ship Repair and Ship Building Allowance in addition to their wages and salaries.

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 6(1) We followed these ATO view documents | Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’

Reasons for decision: Detailed Reasoning - Question 1: 1. OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and includes the total of the employee’s earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission. However it does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave. 2. OTE is described in SGR 2009/2 as the payment for the ‘ordinary hours of work’. The term ‘ordinary hours of work’ is defined as: ● the hours specified as the employee’s ordinary hours under an award or agreement; or ● if the ordinary hours are not specified, the hours regularly worked by the employee; or ● if the ordinary hours are not specified and the regular hours are impossible or impractical to determine, the actual hours worked. 3. 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. 4. The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be ‘in respect of ordinary hours’ and therefore OTE. The Commissioner’s view is that the expression ‘in respect of ordinary hours of work’ was intended to ensure that overtime payments, and similar amounts, were excluded from the earnings base. It was not intended to exclude amounts paid at a worker’s ordinary time rate solely on the ground that they were not earned as a direct result of actually working particular hours in ordinary time. | Detailed Reasoning - Accumulated days off and OTE: 5. ADO’s are a day in a roster period that an employee does not have to work. An employee’s day off can be paid or unpaid, depending on how ADO’s are set out in an award or registered agreement. 6. When an ADO is paid it is because the employee has worked extra hours that add up over a set period of time and this is taken as an ADO. 7. Paragraph 32 and 33 of SGR 2009/2 clarify that ADO payments are normally OTE: 32. Subject to the exclusions mentioned at paragraph 34 of this Ruling, salary or wages that an employee receives, at or below his or her normal rate of pay for ordinary hours of work, in respect of periods of paid leave is simply a continuation of his or her ordinary time pay. It is OTE. It does not matter whether the entitlement to take the paid leave accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer's discretion. 33. Similarly, salary or wages received at the ordinary time rate in respect of public holidays, rostered days off and the like is OTE 8. Payments made to an employee on termination of their employment in lieu of unused sick leave, annual leave or long service leave are expressly excluded from the definition of OTE under subsection 6(1) of the SGAA. However, if a payment for these types of unused leave occurs while the employee remains employed, this amount is paid in connection with the employee’s ordinary hours in the same way as any other leave payment. 9. Whether a lump sum payment of accrued time for an ADO is considered OTE under the SGAA depends on whether it is 'earnings in respect of ordinary hours of work'. This position applies equally to payments 'cashed out' to an employee during the course of their employment, or on their termination. 10. In this case, the Agreements prescribe the ordinary hours as 38 per week over a work cycle of four weeks (152 hours). An employee accrues one ADO for every four weeks where that employee works 152 hours during a 19 day period. 11. This means that a lump sum payment accrued for ADOs would represent an amount paid for work performed in excess of, or in addition to, an employee's normal working hours for a settlement period, and therefore would not be 'in respect of ordinary hours of work’. Even though the amount will be OTE when paid to an employee who takes an ADO, when the amount is paid on termination, it only relates to an amount accrued for time worked above the ordinary hours of the employee. 12. Subsequently, such a payment to an employee would not be OTE as defined in subsection 6(1) of the SGAA. | Detailed Reasoning - Question 2: 13. A ‘ship repair and ship building allowance’ is payable per week to employees engaged on ship repairs. 14. Employees may receive additional payments such as an allowance to recognise or compensate for certain conditions relating to their employment. Examples in paragraph 27 of SGR 2009/2 include dirt, freezer and site allowances. These type of payments are OTE except to the extent that they are not ‘salary or wages’. Salary or wages is remuneration paid to employees for their services as employees. An allowance paid to offset or reimburse an employee’s out of pocket expenses is not salary or wages. 15. For an allowance to be classed as an expense allowance, it must be paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services. 16. The ship repair and ship building allowance is of a similar nature to the examples in paragraph 27 of SGR 2009/2. While it is not expressly stated in the Agreement, the description of the allowance indicates it is intended to compensate the employees for conditions applying to their job, namely working on-site. The Agreement does not specify that the allowance is for the reimbursement of employee expenses. Therefore, unless the allowance relates solely to hours of work other than ordinary hours of work, these payments will be OTE and subject to superannuation guarantee. | Detailed Reasoning - Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 6(1) | Detailed Reasoning - We followed these ATO view documents: Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’