Private ruling: Superannuation guarantee: ordinary time earnings
Date of advice: 19 January 2017
Published: June 2017

Ruling: Q4: Do earnings in respect of sick leave and annual leave paid to employees form part of their OTE for the purposes of subsection 6(1) of the SGAA? Advice Yes. Please see 'Reasons for decision' 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. 1. Employees work for long periods of time and do not have fixed hours of work. 2. You do not have a formal written agreement with your employees. 3. For employees covered by the modern Award, the ordinary hours of work are 38 hours per week. These may be determined as an 'average' of not more than 28 consecutive days. You use the applicable pay rates and then calculate 9.5% of those amounts as your superannuation guarantee (SG) contributions on behalf of your employees. 4. Employees are primarily paid at a piece-rate. 5. Employees are paid an hourly rate for certain duties. 6. The piece-rate and the hourly rate under the modern Award have an overtime component incorporated into each rate. 7. Annual leave and sick leave is paid at a lower hourly rate at a number of hours per day based on a 5 day work week with a maximum number of hours per week. 8. Employees are paid an allowance for certain times their work is interrupted, when the work of resolving the interruption is performed by others. 9. The interruptions to your employees work occur throughout their whole day's work, not just their 'ordinary time.' 10. Under the modern Award, this allowance is payable only when the employee performs the resolution themselves. 11. You pay this allowance to keep up with others in your industry and as an incentive for your employees. 12. Employees are paid an expense allowance if they are required to stay overnight away from home. This is paid per night.

Relevant legislative provisions: Superannuation Guarantee (Administration) Act 1992 Subsection 6(1)

Reasons for decision: Summary: Earnings of employees engaged by you under the modern Award in respect of the allowance for work interruptions, the overtime component of their pay rates, sick leave and annual leave form part of the employees' OTE as these earnings are in relation to the employees' ordinary hours of work. These payments only form part of the OTE if they relate to the average 38 hours worked in a week (worked out over a 28 day period). If an employee works more than an average of 38 hours in a week, any payments in relation to those extra hours do not form part of OTE. The employees' earnings in respect of the expense allowance do not form part of their OTE as these earnings are not in relation to their ordinary hours of work. | Detailed Reasoning - Detailed reasoning: All employers are required to provide a minimum level of superannuation support for their eligible employees by the SG period due date. Employers must use OTE as the earning base to calculate the minimum SG contributions required for employees. | Detailed Reasoning - Ordinary time earnings: OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and is the lesser of: (a) 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, but 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; or (b) the maximum contribution base for the quarter - the maximum contribution base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. The maximum contribution base for the 2013-14 year of income is $48,040 per quarter. This amount is indexed annually according to the indexation factor. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) sets out the Commissioner's views on the meaning of OTE. Paragraphs 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state: Meaning of 'ordinary hours of work' 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. 14. The document need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours 15. Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. 16. If the ordinary hours of work are not specified in a relevant award or agreement, the 'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. This is not necessarily the minimum or maximum number of hours worked or required to be worked. 17. In such cases, it may often not be possible or practicable to determine the normal, regular, usual or customary hours of an employee's work. If so, the actual hours worked should be taken to be the ordinary hours of work. 18. 'Ordinary hours of work' are not necessarily limited to hours to be worked between 9am and 5pm, Monday to Friday. They may (depending on the provision in the relevant award or agreement, if any) include hours to be worked at other times, including at night, on weekends or on public holidays. The Commissioner's view is that “ordinary hours of work” for OTE purposes should be interpreted in the context of the Australian industrial relations system. The employees' “ordinary hours of work” are the hours specified as ordinary hours of work in the documents governing their employment. These documents do not have to use the exact expression “ordinary hours of work”; a genuine distinction between ordinary hours and non-ordinary hours is sufficient. In your case, no evidence has been provided that you have formal enterprise or individual agreements with your employees. The National Employment Standards (NES) are 10 minimum employment entitlements that have to be provided to all employees under the Fair Work Act 2009. Your employees are covered by a modern Award. Therefore the documents that govern the employment of your employees are the modern Award and the NES. You have requested the Commissioner to provide advice on whether certain allowances and conditions under this Award form part of the OTE of your employees for the purposes of the SGAA. | Detailed Reasoning - Over-award payments: Earnings consisting of over-award payments are specifically included in the definition of OTE by subparagraph (a)(ii) of that definition in subsection 6(1) of the SGAA. An over-award payment is the component of a payment in excess of an award entitlement. You stated that while your employees do not themselves undertake the duties required to resolve the interruption to their work as required by the Award, you pay this allowance your employees when these duties are performed by others. Therefore, this allowance payment is an over-award payment to the employees, and therefore is part of their OTE for the purposes of the SGAA. You stated that work interruptions are spread throughout the employee's whole day's work, not just their 'ordinary time.' Nevertheless, the Commissioner's view is that these payments will be OTE unless they are specifically referable to hours worked that are not ordinary time hours. The Award's hourly rate and piece rate methods of paying employees do not differentiate between ordinary hours and time outside these hours. Ordinary time is defined in the Award as 'an average of 38 hours per week, and may be calculated over a period of not more than 28 days.' Therefore, except where in excess of 38 hours, this allowance paid to your employees is included in their OTE for the purposes of subsection 6(1) of the SGAA. | Detailed Reasoning - Overtime component of Award rates: Paragraphs 41 to 43 of SGR 2009/2 state: 41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE. 42. This is so whether the payments are calculated at an hourly rate or the employee gets a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referable to overtime hours as remuneration for overtime hours worked. 43. However, some employees, particularly some managers and professionals, receive a single undissected annual salary within a remuneration package that recognises in a non-specific way that the employee may often be expected to work more than the ordinary hours of work prescribed. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable as mentioned in paragraph 42 of this Ruling. Under the Award, the piece rate and hourly rate for employees includes an overtime component: Although the rates include a component referring to overtime, this component is not deducted from the total when calculating OTE because the piece rate or hourly rate is paid in respect of what are defined to be ordinary hours of work (except where in excess of 38 hours). Accordingly, earnings in respect of the overtime component paid to your employees under the Award, do form part of their OTE for the purposes of subsection 6(1) of the SGAA. | Detailed Reasoning - Expense allowance: On the basis of information provided, you employees are paid an expense allowance if they are required to stay overnight away from home. This is paid under the Award at an amount per night. Paragraph 266 of SGR 2009/2 address expense allowances and state: Expense allowances 266. 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 [of the SGAA]. It also does not form part of an employee's OTE. Similarly, this allowance paid to your employees, is not paid to them for their services, but in recognition of expenses they incur in providing their services. This allowance is not rolled into the hourly-rate or piece rate methods of paying the employees under the Award, instead it is a separate entitlement to employees for each occasion they are put to the inconvenience of an overnight stay and incur associated incidental expenses during the course of their work for you. Accordingly, earnings in respect of this expense allowance paid to your employees under the Award, do not form part of their OTE for the purposes of subsection 6(1) of the SGAA. | Detailed Reasoning - Paid leave: Paragraphs 235 to 238 of SGR 2009/2 addresses paid leave such as annual leave and sick leave, and state: 235. Although leave payments are not paid for actual attendance at work or for services, the salary or wages that an employee receives in respect of periods of paid leave is a continuation of their ordinary pay during their 'ordinary hours of work' and therefore take the place of earnings in respect of actual hours worked. Therefore any salary or wages an employee receives while on annual leave, long service leave or sick leave is in respect of their ordinary hours of work and is OTE. 236. However, as noted in paragraph 59B, payments made to an employee while on parental leave or other ancillary types of leave and 'top-up payments' made while an employee is on jury service, defence reserve service or the like are excluded from salary or wages for superannuation guarantee purposes. Therefore they are not OTE. 237. Casual employees, including part-time casuals, are usually not entitled to paid leave or paid public holidays. Instead they receive a higher rate of pay (a 'casual loading') which is referable to their ordinary hours of work and therefore OTE, unless paid in respect of overtime hours worked. 238. By way of exception an annual leave loading that is payable under some awards and industrial agreements is not OTE if it is demonstrably referable to a notional loss of opportunity to work overtime. However, the loading is always included in 'salary or wages'. Leave conditions for your employees are set down in the Award, which refers to the rate of pay for the employees when they are on these types of leave as 'minimum weekly rates of pay for ordinary hours of work.' This description accords with paragraph 235 of the SGR 2009/2 which states that payments to employees for these periods of leave are continuations of their ordinary pay for their 'ordinary hours of work.' Even though the Award attributes a lower pay rate for leave periods in comparison to the applicable pay rates for days the employees are performing their duties for you, payments for annual leave and sick leave remain part of your employees' OTE for the purposes of subsection 6(1) of the SGAA.

Question 1: Do earnings in respect of an over-award allowance paid to employees form part of their ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | Question 2: Do earnings in respect of an 'overtime allowance' paid to employees form part of their OTE for the purposes of subsection 6(1) of the SGAA? | Question 3: Do earnings in respect of a travel allowance paid to employees form part of their OTE for the purposes of subsection 6(1) of the SGAA? | No. Please see 'Reasons for decision' below. | This advice applies for the following period: Quarter ended 31 March 2014 | Quarter ended 30 June 2014