The following table shows which payments are included in salary or wages and which are included in OTE. The list is not exhaustive and is for general guidance only.
Example 1: An agreement prevailing over award
Ennio is employed under a collective agreement which incorporates terms from an award. To the extent of any inconsistency between the agreement and the award, the agreement prevails.
The award provides that the ordinary hours of work are an average of 38 hours per week and gives an employer the right to require an employee to work reasonable overtime.
However, the agreement provides for a shift roster which requires that employees work an average of 44 hours per week and identifies on the roster the ordinary hours of work as 40 hours (all paid at a particular hourly rate) and the overtime hours as four hours (to attract a penalty rate of pay in addition to the ordinary hourly rate).
Salary or wages
The payment for Ennio's 44 hours of work is a reward for services provided as an employee of the company and is therefore 'salary or wages'.
As the agreement requires Ennio to work an average of 40 'ordinary' hours per week, these are his 'ordinary hours of work'. Therefore, the payment to Ennio for 40 hours of work is 'earnings in respect of ordinary hours of work' and is OTE.
The payment for the additional four hours of rostered overtime is not 'earnings in respect of ordinary hours of work' and is therefore not included in OTE.
Example 2: No ordinary hours of work stipulated
Kim is employed under a contract requiring her to work a minimum number of hours per week in a call centre. By agreement between her and her employer, she may work additional shifts as is mutually convenient. She often does so, though there is no clear and consistent pattern to this.
There is no award or agreement governing Kim's employment that specifies her ordinary hours of work, nor do the extra shifts worked attract any overtime penalties or other higher payments.
Salary or wages
All wage payments made to Kim are a reward for services she provides as an employee and are therefore 'salary or wages'.
As there are no stipulated ordinary hours of work, and no readily discernible pattern of customary, regular, normal or usual hours, all of Kim's hours actually worked are her ordinary hours of work. Therefore, all of her wages are OTE.
Example 3: Piece-rates where no ordinary hours stipulated
Evan works as a fruit picker for Green Apples Ltd. Evan is paid 15 cents for every kilogram of apples that he picks. There are no ordinary hours specified in any award or agreement. Evan produces 5,000 kilograms of apples in his working hours in the week and so is paid $750 by Green Apples Ltd.
Salary or wages
The payment made to Evan is a reward for services he provides as an employee and is therefore 'salary or wages'.
As Evan's ordinary hours of work are not specified in any award or agreement, his ordinary hours of work are the hours that he actually works. Therefore the $750 payment Evan receives is an entitlement accrued as a result of providing services during his ordinary hours of work. The payment received by Evan is therefore 'earnings in respect of ordinary hours of work' and is OTE.
Example 4: Expense allowance expected to be fully expended
Matteo is an employee of JJ Investment Pty Ltd. In addition to his usual salary, Matteo is paid $300 per month to cover expenses he is expected to incur while visiting clients. The expenses Matteo incurs are for travel to client sites, maintenance of a mobile phone and internet access to remotely connect to the office. The allowance is a predetermined amount calculated to cover the estimated expense with the expectation that it will be fully expended in the course of the employee providing the services to the employer.
Salary or wages
As the allowance is not a reward for the services which he is providing as an employee of the company, the payment is not considered to be 'salary or wages'.
A payment cannot be OTE unless it is 'salary or wages'. As Matteo's allowance is not 'salary or wages', it is not OTE.
Example 5: Reimbursement
Fernando travels by train on behalf of his employer and pays for the train ticket for the trip. On his return he provides receipts to his employer totalling $14.50 for the cost of the train ticket. The employer pays Fernando exactly $14.50 to cover the receipts.
Salary or wages
The payment that Fernando receives from his employer is not a reward for his services. Rather, the payment is an exact reimbursement of an expense which he has incurred in the course of his duties. The payment is not 'salary or wages'.
As the payment received is not salary or wages, it is not earnings for the purposes of the definition of OTE and is therefore not OTE.
Example 6: Overtime based on 'hourly driving rate' formula
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.
The hourly driving rate incorporates 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 by 40 and multiplying it by 1.3 (industry disability allowance) and 1.2 (overtime allowance).
The industry disability allowance takes 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.
Salary or wages
The payment made to Samson is a reward for his services as an employee. It is 'salary or wages'.
The overtime allowance component of the payment Samson receives (being the basic hourly rate multiplied by 0.2) is not included in OTE. Under 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 payment Samson receives 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.
Specific Administratively binding advice has been prepared to provide guidance on the calculation of OTE for long-distance truck drivers paid on a cents-per-kilometre basis.
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Last Modified: Monday, 9 July 2012