Private ruling: Salary and wages
Date of advice: 30 June 2022
Published: October 2022

Ruling: Q1: Is the allowance 'salary and wages' as defined in section 11 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | A1: Yes.

Relevant facts and circumstances: 1. The Applicant is a company that operates in Australia and abroad and is listed on the Australian Stock Exchange (ASX). 2. The Application has recently acquired further entities and has undertaken a review across the group in order to create a unified approach to remuneration, fairness, and consistency for all employees. 3. To support employees in maintaining peak physical and mental health, and as part of its duty of care to its employees, the Applicant is proposing to provide financial assistance to employees to obtain premium levels of private health insurance. 4. Under the proposed new remuneration structure is intended to significantly increase the number of eligible employees with access to premium health insurance and provides for a consistent and equitable approach across all employees working for entities within the group. 5. The Applicant or one of its subsidiaries will pay all eligible employees a health insurance payment/allowance via payroll. 6. Employees in receipt of the health insurance payment/allowance will be required to make an after-tax contribution toward the cost of the group private health insurance policy that the Applicant or one of its subsidiaries will purchase and maintain and that will provide a premium level of cover to the employee (this payment by the employee to the employer is known as a recipient's contribution). 7. There will be no contractual arrangement for the provision of health insurance between the health insurer and a participating employee. The Applicant or one of its subsidiaries will negotiate and enter into the contract for the provision of group health insurance to its eligible employees, being those in receipt of the health insurance payment/allowance. 8. Insurance premiums under the insurance policy will be invoiced to, and paid by, the Applicant or one of its subsidiaries. No amounts are invoiced to the employees or are paid directly by the employees. 9. This approach reflects the value of the health insurance benefits which the company provides to its employees in a way that is easy to administer, transparent and ensure equity across all entities. It provides clear transparency to employees of the value of the benefit: • The premium level of health insurance cover deemed necessary is expensive; and • The value of the benefit, shown as an allowance on the employees' payslip, is much more clearly visible to employees, than if the support was provided via alternative means - this articulation of value is critical in an industry where competition for talent is high, yet significant pressure remains on remuneration costs; • The group cover enables employees to access a premium level of cover, at a competitive group discounted price, with many more inclusions and benefits than would be available if employees were each responsible for negotiating individual off-the-shelf policies; • It provides the Applicant control over the level of cover provided to employees that it considers adequate to ensure that they are Fit to Work; and • It leverages insurance arrangements within the group and is therefore relatively easy to implement. 10.Employees are entitled to participate in this arrangement regardless of the role. 11.The allowance is subject to PAYG withholding. Assumptions Nil

Relevant legislative provisions: Section 11 of the Superannuation Guarantee (Administration) Act 1992

Reasons for decision: Detailed Reasoning - Question 1: Is the allowance 'salary and wages' as defined in section 11 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | Summary: The allowance is considered to be part of the 'salary or wages' of the employees who are in receipt of the payment for private health insurance for the purposes of the SGAA . | Detailed Reasoning - Detailed reasoning: The Superannuation Guarantee (Administration) Act 1992 (SGAA), subsection 11(1) defines Salary or wages for the purposes of super guarantee calculations as follows; 11(1) In this Act, salary or wages includes: (a) commission; and (b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and (ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and (c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and (d) payments to a person for work referred to in subsection 12(8); and (e) remuneration of a person referred to in subsection 12(9) or (10). However, under subsections 11(2) and 11(3) certain payments are excluded from being salary or wages: 11(2) Remuneration under a contract for the employment of a person, for not more than 30 hours per week, in work that is wholly or principally of a domestic or private nature is not to be taken into account as salary or wages for the purposes of this Act. 11(3) Fringe benefits within the meaning of the Fringe Benefits Tax Assessment Act 1986 are not salary or wages for the purposes of this Act. Further clarification is provided at paragraph 49 of SGR 2009/2 as follows: 49. The SGAA defines 'salary or wages' inclusively in section 11. Unless specifically excluded, payments are included in the definition of 'salary or wages' if they satisfy the ordinary or common law meaning of that term...... | Detailed Reasoning - Allowances: Paragraph 27 of SGR 2009/2 provides that additional payments, such as allowances and loading payments, made to employees to recognise or compensate employees for certain conditions relating to their employment are OTE except to the extent that they relate solely to hours of work other than ordinary hours of work. Paragraphs 72 and 73 of SGR 2009/2 address expense allowances and reimbursements and state: 72. 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'. 73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary or wages'. The payment to employees to cover private health insurance is an allowance and will be included in the employees' salary and wages for PAYGW purposes. The payment does not relate to any specific hours worked or to overtime hours. This means it falls within ordinary time earnings unless it is an expense allowance that is expected to be fully expended in the course of providing services. | Detailed Reasoning - Expense allowance: It could be argued that the health insurance allowance payment is an 'expense allowance' and therefore not ordinary times earnings. Paragraph 72 of SGR 2009/2 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'. Although it is expected and indeed required as part of the arrangement that the employee fully expends the private health insurance allowance payment by way of a repayment to their employer, such expending is not done in the course of providing services, but instead is made in meeting a condition attached to the original receipt. While employees are encouraged to participate in the arrangement, there is no requirement for an employee to have private health insurance to perform their duties, and there is no clear direct linkage between the health insurance and the ability for the employee to perform their duties successfully. Therefore, the payment by way of allowance for private health insurance is not considered an expense allowance but considered salary and wages for superannuation guarantee purposes.

This advice applies for the following periods: Financial year ending 30 June 20XX | Reasons for Decision: These reasons for decision accompany the Notice of advice . | This is to explain how we reached our decision. This is not part of the advice.