Private ruling: Superannuation guarantee - Lump sum payments received as part of early retirement or transition to retirement
Date of advice: 8 December 2025
Published: 27 January 2026

Ruling: Q1: Do lump sum incentive payments to be made under the Policy A by the Principal form part of an employee's ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | A1: No | Q2: Are the lump sum incentive payments to be made under the Policy B , considered ordinary time earnings (OTE) for the purpose of subsection 6(1) of the SGAA? | A2: Yes - in part

Relevant facts and circumstances: 1. Your advice is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this advice has no effect and you cannot rely on it. The Administratively Binding Advice fact sheet has more information about relying on ATO advice. 2. All classes of employees considered by this administratively binding advice (ABA) are covered under the Principal's Enterprise Agreement 20XX. 3. Under the Policy A , the Principal offers a lump sum incentive payment equivalent to two weeks' salary for each completed equivalent full-time year of service, up to a maximum of 52 weeks, paid upon cessation of employment. 4. Additionally, the Principal offers eligible employees one of two types of payments under Policy B incentive scheme. Under the Principal's policies, Incentive payments are restricted to continuing staff members. In order to access the incentive lump sum a staff member must apply to the Principal who may accept the application having assessed the application against certain criteria. 5. The Principal is required to adhere to the specific policies relating to the lump sum incentive,

Relevant legislative provisions: SGAA subsection 6(1) | SGAAsubsection 6(1)

Reasons for decision: Summary: To be included as OTE, the lump sum payable must be characterised as salary and wages before it can be considered to be OTE. In this case the lump sum payable is not salary and wages. As such, it cannot be classed as OTE and does not attract liability for superannuation guarantee payments. | Detailed Reasoning - Detailed reasoning: 1. Ordinary time earnings, in relation to an employee, is defined in the SGAA subsection 6(1) as: (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; (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 - that maximum contribution base. 2, Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: Meaning of the terms 'ordinary time earnings' and 'salary and wages'; explains the meaning of 'ordinary time earnings'(OTE) as defined in subsection 6(1) of the SGAA. 3 . The definition of OTE is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the SGAA. 4. Paragraph 7 of SGR 2009/2 states that: An amount can only be part of an employee's OTE if it is 'salary and wages' of the employee. But an employee's salary and wages may include amounts that are not OTE. 5. Paragraph 11 of SGR 2009/2 states that: The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression. 6. Paragraph 12 of SGR 2009/2 defines earnings in the following way: 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 and wages'. 7. Paragraph 25 of SGR 2009/2 outlines how to identify earnings 'in respect of ordinary hours of work' for the purpose of subparagraph 6(1)(a)(i) of the ITAA 1997. It states: 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 of employment generally and are not OTE because they are not in respect of any particular hours of work. 8. This is supported by the Court's findings in Bluescope Steel (AIS) Pty Ltd and Anor v Australian Workers' Union (2019) 270 FCR 359 per Allsop CJ who held at [38] that "...the word and phrase can be seen to reflect the long-recognised distinction between ordinary hours of work and overtime". Further, at [101]: "The phrase "ordinary hours of work" has a statutory meaning in the definition by reference to standard hours at ordinary rates in contradistinction to additional hours at higher rates." 9. Further, paragraph 25 provides that all that is required for the purpose of identifying whether an earning comes within subparagraph 6(1)(a)(i) of the ITAA 1997 is to establish a discernible and rational link between the earnings in question and the employee's ordinary hours of work (being those that are performed at ordinary rates of pay). 10. Paragraphs 185 to 188 of SGR 2009/2 provide further guidance in regard to earnings: 185. In the context of the SGAA, the word 'earnings' in the expression 'earnings in respect of ordinary hours of work' is used a descriptor of remuneration received by, or on behalf of, a person who is engaged in the performance of personal services in the capacity of an employee. The word is used in the definition of OTE in subsection 6(1) 'in relation to an employee. The component earnings that are either included or excluded in OTE have to be earnings of the employee. 186. The Commissioner considers that the term 'earnings' as used in the definition of OTE, embraces all those amounts, that are 'salary and wages' paid by the employer to their employee. 187. It follows that OTE in relation to an employee for a quarter is always a sum no larger than the salary and wages paid to that employee for the quarter. If it were possible for the OTE for a quarter to be substantially greater than corresponding salary and wages, employers might in some case be better off not making superannuation contributions, but rather incurring the charge instead (even though the charge is not deductible for income tax purposes and has other costs associated with it). This outcome cannot have been intended. 188. In any case the ordinary meaning of earnings is sufficiently similar to the meaning of 'salary and wages' in the context of the SGAA that the two may be regarded as synonymous. 11. Paragraphs 225 to 228 provide further guidance regarding the importance of earnings being in respect of ordinary hours of work except where these earnings are in respect of overtime: 225. All amounts 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 to overtime or other hours that are not ordinary hours of work. 226. 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 cognate 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. 227. For example, during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours. 228. Given this view, the Commissioner considers that there is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work. However payments that are not considered salary and wages for the purpose of the SGAA cannot be OTE. 12. Based on the above, salary and wages are synonymous with earnings for the purposes of the SGAA. Earnings will only attract the obligation to pay superannuation guarantee where the payment constitutes salary or wages of the employee and is in respect of ordinary hours of work'. This aligns to the definition of OTE in subsection 6(1). 13. SGR 2009/2 also sets out the specific kinds of payments that are not OTE because, for example, the payments that are not salary or wages for the purposes of the SGAA. Paragraph 74 of SGR 2009/2 states that: Redundancy payments made on termination of employment are not a reward for services rendered by an employee, even if part of the payment is calculated by reference to the employee's period of service with the employer. They are payments made to compensate the employee for the loss of their job; not a reward for their services. 14. Under the Principal's Policy A , staff can access a lump sum if they cease working earlier than the statutory requirement age. Under paragraph 74 of SGR 2009/2, notwithstanding that the lump sum payment is calculated by reference to the employee's period of service, the payments are made to compensate an employee for the loss of their job, not a reward for their services. Accordingly, the payments are not considered salary or wages for the purposes of the SGAA. 15. Additionally, under paragraph 25 of SGR 2009/2, there is no discernible and rational link between the payment and the employee's ordinary hours of work. 16. In conclusion, the incentive payments are neither salary or wages nor OTE under the SGAA. Question 2 Are the lump sum incentive payments to be made under the Policy B , considered ordinary time earnings (OTE) for the purpose of subsection 6(1) of the SGAA? | Detailed Reasoning - Answer: Yes - in part | Summary: To be included as OTE, the lump sum payable must be characterised as salary and wages before it can be considered OTE. The Incentive amount is considered earnings in respect of ordinary hours of work and forms part of an employee's OTE and has an SG obligation. | Detailed Reasoning - Application to the incentive payment: 17. The information provided by the Principal provides that Policy B supports staff members' staged transition to retirement and the retention of corporate knowledge through an incentivised career transition. It supports workforce continuity through the gradual retirement of eligible staff members without compromising the Principal's operational need and loss of corporate knowledge. 18. The Incentive is paid as an incentive for a staff member to continue to provide services for a specified period on a reduced basis prior to their retirement. The incentive payment is therefore a product of the contract for the continued provision of service under the transition to retirement arrangement. It has a connection with the performance of services by the staff member. 19. The incentive payment therefore has been established as 'earnings' for the purposes of OTE. The next thing to consider is whether they are earnings in respect of ordinary hours of work. 20. 'In respect of' is given a wide interpretation. It does not require earnings to be exclusively derived in respect of ordinary hours of work. As discussed earlier, earnings will be 'in respect of ordinary hours' unless they are entirely referrable to non-ordinary hours of work. That is, in order for something not to be earnings in respect of ordinary hours, they must be entirely referrable to non-ordinary hours of work (e.g. overtime). 21. In this matter, there is no suggestion the incentive payment is referrable to non-ordinary hours of work. The incentive payment should therefore be treated as being 'in respect of' ordinary hours of work. 22. As the lump sum incentive payment is a reward in exchange for the provision of service during ordinary hours, it constitutes salary or wages (or 'earnings') in respect of ordinary hours and will likely be OTE. The payment will therefore result in a liability for superannuation guarantee. 23. In conclusion, the incentive payments made under the Policy B would be OTE where the terms provide for a reward in exchange for the provision of service during ordinary hours. This is because such terms would provide a discernible and rational link between the right to that reward and the provision of service during ordinary hours. | Detailed Reasoning - Question 1: Do lump sum incentive payments to be made under the Policy A by the Principal form part of an employee's ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | Detailed Reasoning - Answer: No | Summary: To be included as OTE, the lump sum payable must be characterised as salary and wages before it can be considered to be OTE. In this case the lump sum payable is not salary and wages. As such, it cannot be classed as OTE and does not attract liability for superannuation guarantee payments. | Detailed Reasoning - Detailed reasoning: 1. Ordinary time earnings, in relation to an employee, is defined in the SGAA subsection 6(1) as: (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: (C) a payment in lieu of unused sick leave; (D) an unused annual leave payment, or unused long service leave payment within the meaning of the Income Tax Assessment Act 1997; (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 - that maximum contribution base. 2, Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: Meaning of the terms 'ordinary time earnings' and 'salary and wages'; explains the meaning of 'ordinary time earnings'(OTE) as defined in subsection 6(1) of the SGAA. 3 . The definition of OTE is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the SGAA. 4. Paragraph 7 of SGR 2009/2 states that: An amount can only be part of an employee's OTE if it is 'salary and wages' of the employee. But an employee's salary and wages may include amounts that are not OTE. 5. Paragraph 11 of SGR 2009/2 states that: The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression. 6. Paragraph 12 of SGR 2009/2 defines earnings in the following way: 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 and wages'. 7. Paragraph 25 of SGR 2009/2 outlines how to identify earnings 'in respect of ordinary hours of work' for the purpose of subparagraph 6(1)(a)(i) of the ITAA 1997. It states: 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 of employment generally and are not OTE because they are not in respect of any particular hours of work. 8. This is supported by the Court's findings in Bluescope Steel (AIS) Pty Ltd and Anor v Australian Workers' Union (2019) 270 FCR 359 per Allsop CJ who held at [38] that "...the word and phrase can be seen to reflect the long-recognised distinction between ordinary hours of work and overtime". Further, at [101]: "The phrase "ordinary hours of work" has a statutory meaning in the definition by reference to standard hours at ordinary rates in contradistinction to additional hours at higher rates." 9. Further, paragraph 25 provides that all that is required for the purpose of identifying whether an earning comes within subparagraph 6(1)(a)(i) of the ITAA 1997 is to establish a discernible and rational link between the earnings in question and the employee's ordinary hours of work (being those that are performed at ordinary rates of pay). 10. Paragraphs 185 to 188 of SGR 2009/2 provide further guidance in regard to earnings: 185. In the context of the SGAA, the word 'earnings' in the expression 'earnings in respect of ordinary hours of work' is used a descriptor of remuneration received by, or on behalf of, a person who is engaged in the performance of personal services in the capacity of an employee. The word is used in the definition of OTE in subsection 6(1) 'in relation to an employee. The component earnings that are either included or excluded in OTE have to be earnings of the employee. 186. The Commissioner considers that the term 'earnings' as used in the definition of OTE, embraces all those amounts, that are 'salary and wages' paid by the employer to their employee. 187. It follows that OTE in relation to an employee for a quarter is always a sum no larger than the salary and wages paid to that employee for the quarter. If it were possible for the OTE for a quarter to be substantially greater than corresponding salary and wages, employers might in some case be better off not making superannuation contributions, but rather incurring the charge instead (even though the charge is not deductible for income tax purposes and has other costs associated with it). This outcome cannot have been intended. 188. In any case the ordinary meaning of earnings is sufficiently similar to the meaning of 'salary and wages' in the context of the SGAA that the two may be regarded as synonymous. 11. Paragraphs 225 to 228 provide further guidance regarding the importance of earnings being in respect of ordinary hours of work except where these earnings are in respect of overtime: 225. All amounts 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 to overtime or other hours that are not ordinary hours of work. 226. 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 cognate 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. 227. For example, during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours. 228. Given this view, the Commissioner considers that there is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work. However payments that are not considered salary and wages for the purpose of the SGAA cannot be OTE. 12. Based on the above, salary and wages are synonymous with earnings for the purposes of the SGAA. Earnings will only attract the obligation to pay superannuation guarantee where the payment constitutes salary or wages of the employee and is in respect of ordinary hours of work'. This aligns to the definition of OTE in subsection 6(1). 13. SGR 2009/2 also sets out the specific kinds of payments that are not OTE because, for example, the payments that are not salary or wages for the purposes of the SGAA. Paragraph 74 of SGR 2009/2 states that: Redundancy payments made on termination of employment are not a reward for services rendered by an employee, even if part of the payment is calculated by reference to the employee's period of service with the employer. They are payments made to compensate the employee for the loss of their job; not a reward for their services. 14. Under the Principal's Policy A , staff can access a lump sum if they cease working earlier than the statutory requirement age. Under paragraph 74 of SGR 2009/2, notwithstanding that the lump sum payment is calculated by reference to the employee's period of service, the payments are made to compensate an employee for the loss of their job, not a reward for their services. Accordingly, the payments are not considered salary or wages for the purposes of the SGAA. 15. Additionally, under paragraph 25 of SGR 2009/2, there is no discernible and rational link between the payment and the employee's ordinary hours of work. 16. In conclusion, the incentive payments are neither salary or wages nor OTE under the SGAA. Question 2 Are the lump sum incentive payments to be made under the Policy B , considered ordinary time earnings (OTE) for the purpose of subsection 6(1) of the SGAA? | Detailed Reasoning - Answer: Yes - in part | Summary: To be included as OTE, the lump sum payable must be characterised as salary and wages before it can be considered OTE. The Incentive amount is considered earnings in respect of ordinary hours of work and forms part of an employee's OTE and has an SG obligation. | Detailed Reasoning - Application to the incentive payment: 17. The information provided by the Principal provides that Policy B supports staff members' staged transition to retirement and the retention of corporate knowledge through an incentivised career transition. It supports workforce continuity through the gradual retirement of eligible staff members without compromising the Principal's operational need and loss of corporate knowledge. 18. The Incentive is paid as an incentive for a staff member to continue to provide services for a specified period on a reduced basis prior to their retirement. The incentive payment is therefore a product of the contract for the continued provision of service under the transition to retirement arrangement. It has a connection with the performance of services by the staff member. 19. The incentive payment therefore has been established as 'earnings' for the purposes of OTE. The next thing to consider is whether they are earnings in respect of ordinary hours of work. 20. 'In respect of' is given a wide interpretation. It does not require earnings to be exclusively derived in respect of ordinary hours of work. As discussed earlier, earnings will be 'in respect of ordinary hours' unless they are entirely referrable to non-ordinary hours of work. That is, in order for something not to be earnings in respect of ordinary hours, they must be entirely referrable to non-ordinary hours of work (e.g. overtime). 21. In this matter, there is no suggestion the incentive payment is referrable to non-ordinary hours of work. The incentive payment should therefore be treated as being 'in respect of' ordinary hours of work. 22. As the lump sum incentive payment is a reward in exchange for the provision of service during ordinary hours, it constitutes salary or wages (or 'earnings') in respect of ordinary hours and will likely be OTE. The payment will therefore result in a liability for superannuation guarantee. 23. In conclusion, the incentive payments made under the Policy B would be OTE where the terms provide for a reward in exchange for the provision of service during ordinary hours. This is because such terms would provide a discernible and rational link between the right to that reward and the provision of service during ordinary hours.

This advice applies for the following period: 1 July 20XX to 30 June 20XX