Private ruling: Superannuation guarantee and ordinary time earnings.
Published: July 2012

Ruling: Q1: Does the guaranteed amount of overtime payments to be included in the proposed agreement form part of OTE for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | A1: No. See detailed reasoning 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. The fact sheet has more information about relying on ATO advice . The industry award The taxpayer employs staff under an award (the Award). The award states: · The ordinary hours of work for full-time employees will be an average of 38 hours per week to be worked within a work cycle not exceeding 28 consecutive days. · Except as provided below, the ordinary hours of work must not exceed eight hours per day and are to be worked continuously (except for meal breaks) on Monday to Friday between the hours of 4.00 am and 5.00 pm. · Work done outside ordinary hours must be paid for at 150% of the relevant minimum wage calculated hourly for the first two hours and 200% after the first two hours. The proposed agreement The taxpayer intends to put into effect an agreement on top of the industry award for their employee drivers. The proposed agreement states: · This Agreement does not alter the definition of "ordinary hours of work" as provided in the Award. · The Employee is required to work 7.6 hours a day and 38 ordinary hours per week ("ordinary hours of work") as per the conditions prescribed by the Award. · In addition to the ordinary hours stipulated in the agreement, the Employee is expected and agrees to work reasonable overtime. · The taxpayer has determined a historical pattern of overtime work conducted by each employee. They have established that in the ordinary course of their duties the employee will work 2 hours of overtime, on average, in order to meet customer requirements. · The new proposal of the taxpayer recognises the ordinary hours of work as referenced in the award in this new agreement and introduces a guaranteed payment for 2 hours of overtime work per day. · On any particular work day it is possible that the actual overtime worked by the employee driver may be less than 2 hours. In this instance the employee driver would continue to be paid for the 2 hours. · The pay rate applicable to the 2 hours of guaranteed overtime is the same as the one which is applied to overtime in the Award.

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

Reasons for decision: Summary: The overtime payments are to be paid at the relevant award rate for overtime payments. The guaranteed overtime payment is wholly referable to overtime payments and is therefore not OTE. | Detailed Reasoning - 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 ordinary time earnings (OTE), as defined in the SGAA. OTE in relation to an employee is defined in subsection 6(1) of the SGAA 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 ; 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 contributions base for the quarter - the maximum contributions base. 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'. Paragraphs 41 to 43 of SGR 2009/2 states: 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. Furthermore, paragraphs 115 to 119 of SGR 2009/2, which is in the explanation section of the ruling, gives this example of a guaranteed overtime payment: 115. Samson is employed as a long-distance truck driver. He is employed under an award which stipulates a minimum guaranteed wage payment per week, regardless of how little he actually drives. If, however, a driver travels sufficiently far in a given week, an hourly rate of pay determines the driving component of his wages in place of the minimum weekly wage. One week, Samson travels from Adelaide to Darwin via the Stuart Highway. This is stipulated in his award as a distance of 3,019 kilometres, and he is assumed to have taken 40.25 hours to complete this journey. Samson's driving component of his earnings for this trip is worked out by multiplying the hourly driving rate by 40.25 hours. This produces a result well in excess of the minimum guaranteed payment for the week in question. Samson is therefore paid that higher amount. 116. The hourly driving rate is said by the award to incorporate two additional components: an 'Industry Disability Allowance' and an 'Overtime Allowance'. The formula in the award stipulates that the hourly rate is determined by dividing the minimum weekly wage rate stipulated in the award by 40 and multiplying it by 1.3 (Industry Disability Allowance) and 1.2 (Overtime Allowance). 117. The 'Industry Disability Allowance' is expressed as taking the place of shift-loading and various conditions-of-service allowances. The 'Overtime Allowance', by contrast, takes the place of any entitlement to be paid for overtime hours. 118. The payment made to Samson is a reward for his services as an employee. It is 'salary or wages'. 119. The overtime allowance of the payment Samson receives (being the basic hourly rate multiplied by 0.2) is not OTE as having regard to the terms of the award as a whole it is genuinely referable, albeit on a notional averaged basis, to overtime hours worked rather than ordinary hours. The remainder of the hourly rate is OTE. In particular the Industry Disability Allowance is referable, albeit on a notional averaged basis, to earnings that would be in respect of ordinary hours. Therefore, where a payment is genuinely referable to overtime hours, even on a notional averaged basis, the payment will not be OTE. This is the case even when the employee might still receive the payment for overtime when, on any particular day, they don't actually work the overtime hours. | Detailed Reasoning - Application to the taxpayers: In the agreement proposed by the taxpayer the payment for overtime is an overtime loading. The pay rate applicable to the 2 hours of overtime is the same rate which is stipulated for the same kind of overtime in the relevant award. The payment is expressly referable to overtime hours. The payment is therefore not OTE.

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. | This advice applies for the following period: Period ending 30 June 2013