Private ruling: Superannuation guarantee and portable long service leave
Published: May 2014

Ruling: Q1: Is an amount of portable long service leave paid by a long service leave fund (the LSL Fund) to an employee of the employer, excluded from the calculation of ordinary time earnings by the employer under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? Advice: Yes, please see 'Explanation' below.

Relevant facts and circumstances: • The employer is an independently run business in an industry sector. • The LSL Fund administers the portable long service leave scheme for the industry sector and is responsible for the administration of a long service leave Act. • The employer pays an amount to the LSL Fund on a quarterly basis for actual time worked by each employee of the employer to provide for the employees long service leave. • When an employee of the employer is on long service leave, payments are made directly to the employee by the LSL Fund, who also provides the employee with a PAYG summary for their tax returns. • Payments made by the LSL Fund, and any relevant deductions, are not included in the PAYG summary provided by the employer to its employees. • The employer requested clarification as to whether or not they are liable to pay superannuation guarantee on long service leave paid by the LSL Fund to their employees.

Relevant legislative provisions: Superannuation Guarantee (Administration) Act 1997 subsection 6(1) | Superannuation Guarantee (Administration) Act 1992 section 11 | Superannuation Guarantee (Administration) Act 1992 section 12 Explanation | Payment not salary and wages | The employer does not have an obligation under the SGAA for an employee being paid portable long service leave by the LSL Fund as the payment does not meet the definition of salary and wages, and therefore would not be considered ordinary time earnings. | The Macquarie Dictionary explains the ordinary meaning of salary and wages as:- | Definition of salary - a fixed periodical payment, usually monthly, paid to a person for regular work or services, especially work other than that of a manual, mechanical, or menial kind. | Definition of wages - | 1. that which is paid for work or services, as by the day or week; hire; pay. | Section 11 of the SGAA provides an expanded definition of salary and wages for superannuation guarantee purposes by including the following payments:- | In this Act, salary or wages includes: (a) commission; and | (b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and | (ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and | (c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and | (d) payments to a person for work referred to in subsection 12(8); and | (e) remuneration of a person referred to in subsection 12(9) or (10). | By comparing the requirements above it appears the LSL Fund payment does not meet any of the definitions above of salary and wages. Therefore, it cannot be said that the payment is a reward for the services of the employee to the employer. | As explained in paragraph 7 of the Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2):- | An amount can only be part of an employee's OTE if it is 'salary or wages' of the employee. But an employee's salary or wages may include amounts that are not OTE. | Payment from the LSL Fund would be excluded from salary or wages for SGAA purposes. Therefore the payment is not ordinary time earnings. | Claimant not an employee of the payer and payment not made on behalf of independently run business | An obligation under the SGAA will only arise where an employer/employee relationship exists. Section 12 of the SGAA defines the term employee for the purposes of the SGAA. The definition includes those individuals who are common law employees and extends to those individuals who are or may not be common law employees, (for example, contractors employed under a contract wholly or principally for their labour). | The role of the LSL Fund is to provide a particular service for the employees working within the industry sector, which is the collection and disbursement of long service leave entitlements. | An employee receiving the portable long service leave payment would not perform any work or provide services or labour to the LSL Fund and the LSL Fund is not making this payment on behalf of the employer. | Despite the fact that the employee will return to work for the independently run business after the period of leave there is no direct connection between the payment of the portable long service leave and the employee's ordinary time earnings with the employer. | Portable long service leave is accrued and earned over a period of time without reference to a specific employer; with the exception that each employer must be a contributing employer under the long service leave scheme. | Therefore, this payment would be excluded from the calculation of ordinary time earnings under the SGAA.