Edited version of private advice

Authorisation Number: 1052054558102

Date of advice: 27 April 2023

Ruling

Subject: Ordinary time earnings

Relevant facts and circumstances

The employer is a local government authority.

There is an agreement (the Agreement) in force with employees.

The Agreement specifies the ordinary hours of work for a full-time wages employee and for a full-time salaried employee.

The Agreement provides the terms of payment of an allowance (the Allowance).

You advise that the Allowance was a new policy designed so that all employees commence on site with all tools and equipment. The intention of the Allowance was for employees to arrive at site able to start work at their normal starting time, rather than arriving at work at their normal starting time and then needing to travel to the depot to get the equipment or materials required to perform work tasks.

You advise that largely speaking employees will be travelling in the employer vehicles. Employees who travel by their own means directly to and from site, are unlikely to transport significant tools and equipment in their own vehicles.

The Allowance is paid once per day and the rate does not increase depending on the time spent travelling. The Allowance overrides any provisions in the Agreement that provide for a travel allowance.

Detailed reasoning

Definition of ordinary time earnings

Section 6 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) defines OTE 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 contribution base for the quarter-the maximum contribution base.

An allowance will be OTE except to the extent that they:

a.    Are not salary or wages.

b.    Relate solely to hours of work other than ordinary hours.[1]

The meaning of "ordinary hours of work" is not defined in the SGAA, however Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) states:

An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment.[2]

Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'.[3]

Chief Justice Allsop in Bluescope Steel (AIS) Pty Ltd v Australian Workers Union[4] found the following definition of OTE:

The text, context, purpose and enactment history do not direct one to a meaning constituted solely by hours (factually) usually worked. They tend to a meaning that provides for an objective standard that aids in simplicity and lack of complexity. The use, from 1992, of the relevant phraseology in a context of industrial awards and instruments; the well-known conception contained within industrial awards and instruments of standards hours at ordinary rates of pay, and of overtime; the need for the phraseology to be practical, general and flexible to pick up all circumstances of employment; and the need for the task set for the employer to administer and the ATO to audit, quarter by quarter, individual by individual, to be as simple or non-complex as possible all direct one to a meaning that reflects those considerations. The meaning that best reflects these considerations and the text, context, purpose and history of the provision is earnings in respects of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment, but if such does not exist (and there is no distinction between ordinary or standard hours and other hours by reference to rates of pay) earnings in respect of the hours that the employee has agreed to work or, if different, the hours usually or ordinarily worked.

This meaning adopts as central (to the extent that it is present) the distinction long familiar in the industrial and employment context, and widely understood, between earnings for ordinary time and earnings for an additional or greater number of hours beyond ordinary or standard hours. If in a particular context such distinction does not exist in the remuneration for the labour provided, the required comprehensiveness and flexibility of the meaning will fix upon the hours agreed to be worked, or the hours normally worked if different. This is not to give a variable meaning to the expression, it is to recognise that the context and particular circumstances will provide by way of factual application, the answer to the reach of the phrase which has a simple meaning by reference to real life.[5]

An expense allowance and reimbursement would not be salary or wages where it is an expense allowance paid to an employee with a reasonable expectation that the employee will fully spend the money in the course of providing services.[6] The expense allowance is not given for the services of the employee.[7] This type of payment would not form part of the employees OTE.

In Road & Traffic Authority of NSW v. Federal Commissioner of Taxation[8] where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relates to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'.

In this case, the Allowance is paid to employees to compensate them for travelling in their own time to start on site with all of their tools and equipment.

The employees are employed under an industrial agreement which provides for the payment of the Allowance.

To be paid the Allowance, employees must meet certain requirements.

You advised that the Allowance is paid regardless of whether the employees are travelling in the employer vehicles or by their own means. Largely speaking, employees will travel in the employer vehicles and it is unlikely that employees who travel by their own means directly to and from site will transport significant tools and equipment in their own vehicles.

Employees who ordinarily start work on site but are directed to start at the depot to meet business needs will continue to be eligible for the Allowance. Further, employees who ordinarily start work at the depot but request to start and finish on site may be approved to do so where it meets business needs.

The Allowance is not considered an expense allowance as the allowance is not paid to reimburse the employee for expenses they have or are expected to have incurred. This is because the Allowance is paid regardless of whether employees are travelling in their own or employer vehicles. Further, the conditions of receiving the Allowance are not contingent on the employee incurring any expense.

The Agreement specifies the ordinary hours of work for a full-time wages employee and for a full-time salaried employee.[9] The Agreement does not specify what hours of work would be ordinary.

While the Agreement does not define "own time", under its ordinary meaning it is taken to mean when an employee is not working.

In this case, the Allowance is paid to employees to compensate them for travelling in their own time, to ensure they start on site with all tools and equipment necessary to commence work. As the payment is not paid in connection with the attendance or services of the employee during ordinary hours of work, it is not OTE.

In conclusion, to constitute OTE, a payment must be made with respect to employee's ordinary hours of work. That is, it must be paid for attendance or work done by the employee in those hours.

As the Allowance is not paid to employees by reason of or connection with their ordinary hours of work, the payments are not considered OTE for the purposes of subsection 6(1) of the SGAA.

[1] SGR 2009/2 at [27].

[2] SGR 2009/2 at [13].

[3] GSR 2009/2 at [15].

[4] [2019] 270 FCR 359.

[5] Ibid at [56-57].

[6] SGR 2009/2 at [72].

[7] SGR 2009/2 at [266].

[8] (1993) 43 FCR 223

[9] Clause 3.3 of the Agreement.