Private ruling: Superannuation Guarantee - ordinary time earnings
Date of advice: 23 December 2024
Published: 17 February 2025

Ruling: Q1: Is the travel allowance (Allowance) paid to employees by the Taxpayer ordinary time earnings (OTE) as defined by subsection 6(1) of the Superannuation Guarantee (Administrative) Act 1992 (SGAA). | A1: Yes.

Relevant facts and circumstances: The Taxpayer employs workers engaged in construction work. The employment terms and conditions for construction workers are documented in the enterprise agreement (the Agreement). Construction workers are paid a travel allowance (Allowance) prescribed by the Industry Award (the Award). The Allowance is also covered under the Agreement. The Agreement explains who gets the Allowance. Besides the Award and the Agreement, the construction workers have employment contract which outlines an overview of their employment conditions. Superannuation has been paid by the Taxpayer to the construction workers in respect of the Allowance. The Agreement states that Ordinary Time Earnings has the same definitions as defined by Superannuation Guarantee Ruling 2009/2. The Agreement confirms that RDOs are paid at the ordinary time rate paid to employees at the time of taking the RDO and will include the Allowance.

Relevant legislative provisions: Superannuation Guarantee (Administration) Act 1992 subsection 6(1) Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Reasons for decision: Summary: From 1 July 2008, all employers must use ordinary time earnings (OTE) as the earnings base to calculate the minimum super guarantee (SG) contributions required for their employees. The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA as follows: ordinary time earnings, in relation to an employee, means: (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) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and (ii) earnings consisting of over-award payments, shift-loading or commission; or (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. The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression. The Commissioner's views on OTE are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. Paragraphs 12 and 13 of SGR 2009/2 provides the Commissioner's view of what is meant by 'earnings' and 'ordinary hours of work'. They state: 12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'. 13. An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment. As per paragraph 27 of SGR 2009/2, there are certain kinds of payments are 'ordinary time earnings' (27) Many employees receive various additional payments that are described as allowances or loadings and 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 acknowledgment of the displacement and 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; These kinds of payment 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 Paragraphs 72 and 73 of SGR 2009/2 provide certain payment are not 'salary and wages'. (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 Court had considered whether an allowance is salary and wages. Paragraphs 260 to 263 of SGC 2009/2 provide that: (260) In Mutual Acceptance [1] , 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 in the then Commonwealth Pay-Roll Tax Assessment Act 1941-42 . [2] The payment represented partial compensation for the motor vehicle expenses likely 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: [3] ... represents higher wages paid on account of special conditions, and may fairly be 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 [4] 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'. Employees accrue an RDO every X weeks. The Allowance is a payment per day for each day worked, and it is paid on the RDO. It is a payment made to employees in respect of ordinary hours which employees work in X week cycle. Therefore, the Allowance is OTE. The Allowance is to recognise and compensate a condition of employment. As per the Award, the Allowance is to recognise that the employees have to start and finish their work on a construction site. In the Agreement, it states that employees who get the living away from home allowance are also entitled to the Allowance. Employees who are required to reside elsewhere than on the work site (or adjacent to the site and supplied with transport) shall be paid the Allowance. The Allowance is not an expense allowance or a reimbursement. There is no expense incurred during the course of employees' providing services. The Allowance is paid a set amount each day when employees come to work and finish the work on site. It is paid when the employees have an RDO, it is not a reimbursement. Therefore, the exception under paragraphs 72 and 73 of the SGR 2009/2 does not apply, the Allowance is considered salary and wages and therefore forms part of the OTE. As per the Court's interpretation discussed above, the Allowance is considered salary and wages. It is an additional payment to compensate employees' services. It has no bearing on the actual cost of travel incurred by the employees, and it is not a reimbursement. The Commissioner is of the opinion that the Allowance paid to construction workers is OTE and therefore is subject to the superannuation guarantee payment. It is a payment made to the employee in respect of their employment as a reward for their services. | Detailed Reasoning - Conclusion: The Allowance forms part of the employees' OTE for the purposes of subsection 6(1) of the SGAA. As a result, the employer has an obligation to make superannuation guarantee payments in respect of the Allowance. [1] (1944) 69 CLR 389; (1944) 7 ATD 506. [2] The definition of 'wages' in the Commonwealth Pay-roll Tax Assessment Act 1941-42 expressly included the term 'allowance' unlike the SGAA. [3] (1944) 69 CLR 389 at 397. [4] (1993) 43 FCR 223; 93 ATC 4508; (1993) 26 ATR 76.