Private ruling: Paid leave
Published: February 2013

Ruling: Yes. A payment to an employee who has been stood down due to lack of work but whose employment has not been terminated, does form part of OTE under subsection 6(1) of the SGAA. See "Explanation". | Facts | The employer operates a business. | The employer paid their employee an amount for leave for a period during which they were stood down temporarily but not terminated permanently.


Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 6(1) Explanation | Summary | The payment made to the employee who was stood down forms part of OTE as defined in subsection 6(1) of the SGAA. | Detailed reasoning | The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA. In effect this means employers can no longer use earnings bases specified in industrial awards, superannuation schemes, occupational superannuation arrangements or a law of the Commonwealth, State or Territory to satisfy their requirements in meeting their SGAA liability. | 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 2011-12 year of income is $43,820 per quarter. This amount is indexed annually according to the indexation factor. | The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. | Paid leave | Paragraph 32 of SGR 2009/2 defines paid leave as: | 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. | Paragraph 34 states that the exclusions are: | Any payments made while a worker is on paid parental leave or other kinds of ancillary leave are not OTE as these types of leave payments are excluded from being 'salary or wages' in the SGAA by Regulation 7AD of the Superannuation Guarantee (Administration) Regulations 1993 (SGAR): see paragraph 59B of this Ruling. Paragraph 59B of the SGR 2009/2 states: | Prescribed salary or wages - parental leave and ancillary leave | Salary or wages paid to an employee for a period of parental leave are prescribed for the purposes of paragraph 27(1)(e) by regulation 7AD of the SGAR. The regulation contains an inclusive definition of 'parental leave' for this purpose. Also prescribed are salary or wages paid to an employee who is engaged in an eligible community service activity and paid while absent from his or her usual employment; and salary or wages paid to an employee who is undertaking service with the Australian Defence Force and paid while absent from his or her usual employment. | Conclusion | As the payment does not fall within the exclusions contained in regulation 7AD of the SGAR and explained in paragraph 59B of SGR 2009/2 the payment forms part of OTE as defined in subsection 6(1) of the SGAA and expanded in paragraph 32 of SGR 2009/2. The employer is required to pay SG on this payment.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Question: Does a payment to an employee who has been stood down due to lack of work but whose employment has not been terminated, form part of ordinary time earnings (OTE) under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?