ATO Interpretative Decision

ATO ID 2006/66 (Withdrawn)

Superannuation

• This ATO Interpretative Decision is withdrawn and replaced by ATO ID 2010/113.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are payments of unused flex leave to non-ongoing employees covered by a Certified Agreement, considered OTE for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Decision

No.

Facts

The organisation offers non-ongoing employees the opportunity to cash out a maximum of five hours flex credit within a settlement period to salary, paid at single time rates.

The payment of unused flex is not paid on termination of the employees' employment.

The organisation has a Certified Agreement (the Agreement) applicable for non-ongoing employees and sets out the employer's superannuation obligations.

Under the Agreement, flex credits and debits accrue on the basis of a 7 hour 25 minute day for full time employees and on a pro rata basis for part time employees.

If the employees do not elect to be paid out their excess flex, they will be able to take time off on the unused flex subject to organisational requirements.

The Agreement does not contain an acceptable earnings base for the purposes of the superannuation guarantee.

Reasons for Decision

The superannuation guarantee scheme applies to all employers in respect of their full-time, part-time and casual employees. However, employers do not have to provide superannuation support for some limited categories of employees. Some of these categories include:

•

employees who are paid less than $450 in a calendar month;

•

employees who are 70 years and over;

•

employees under 18 years of age working 30 hours or less per week.

If an employee does not fall within one of the exemptions, they would be entitled to superannuation guarantee regardless of whether they are employed on a full time, part time or casual basis.

The SGAA outlines the earnings base on which an employer is required to provide superannuation support, in order to reduce the superannuation guarantee charge to nil.

An employee's earnings base can be stated in:

•

the superannuation funds trust deed,

•

an occupational superannuation arrangement,

•

a law of the Commonwealth, a State or Territory,

•

an industrial award or

•

a certified or Australian workplace agreement.

If an employee's earnings base is not stated in any of the above, then the default earnings base, OTE, as prescribed by the SGAA will be used as the applicable earnings base.

In this case, the non-ongoing employees are covered by the Agreement approved under section 170LT of the Workplace Relations Act 1996.

A clause of the Agreement sets out the superannuation contributions employers are required to pay for their employees and states:

the employer will pay, on behalf of all employees covered by this agreement, the superannuation contribution as appropriate to their elected scheme and/or in accordance with the relevant superannuation legislation applicable at the time.

This clause does not contain an earnings base for superannuation guarantee purposes as it does not specify the employee's earnings on which the employer contributions are to be calculated. If no other acceptable earnings base exists for employees covered by the Agreement, the default earnings base, OTE, will apply.

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

(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)

a payment in lieu of unused annual leave within the meaning of subsection 26AC(1) of the Income Tax Assessment Act 1936 (ITAA);

(C)

a payment in lieu of unused long service leave within the meaning of subsection 26AD(1) of the ITAA; and

(ii)

earnings consisting of over-award payment, 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 contribution period - the maximum contribution base.

Moreover, the Superannuation Guarantee Ruling 94/4 (SGR 94/4) provides guidance on the interpretation of the term OTE for SGAA purposes.

Paragraph 11 of SGR 94/4 considers the term 'in respect of' and it states:

For the definition of OTE, a payment will be taken to be earnings in respect of ordinary hours of work if it is made:

•

for attendance, or for work done, in those hours; or

•

to satisfy an entitlement that accrued as a result of attending, or working, in those hours.

Paragraphs 8 and 9 of SGR 94/4 states:

If an employee is not covered by an award, but has agreed to work a certain number of hours, those hours are the employee's ordinary hours of work...If the ordinary hours of work are not specified or agreed, the ordinary hours of work will be the hours actually worked and any hours of paid leave.

In this case, the Agreement gives a definition of 'standard day' and 'working day' and states:

"standard day" means a 7 hour 21 minute day for the purposes of all leave accruals and deductions.

"working day" means a 7 hour 25 minute day.

The Agreement specifies that 'the span of hours during which employees may work their ordinary hours of duty is 7.30am to 6.30pm, Monday to Friday'.

Regarding the accrual of flexi time debits and credits, the Agreement states:

For the purposes of flextime, credits and debits will accrue on a 7 hour 25 minute day for full time employees, and on a pro rata basis for part-time employees.

A flex credit accumulates in accordance with a clause of the Agreement:

A flex credit is the accumulation of flextime in excess of working hours (74 hours and 10 minutes) over a settlement period.

The working hours for a settlement period of 74 hours and 10 minutes represents 10 working days of 7 hours and 25 minutes. The Agreement defines a settlement period for the purposes of flex credit and flex debit and states:

For the purposes of flex credit and flex debit there is a two week settlement period commencing on a payday Thursday and ceasing on a Wednesday.

The Agreement makes it clear that a standard working day means a 7 hour and 25 minute day. It also makes it clear that for the purposes of flex time, flex credits and debits accrue on a 7 hour 25 minute day. Under the Agreement, flex credit represents the accumulation of flex time in excess of the working hours for the settlement period (that is, 74 hours and 10 minutes). A flex credit therefore only accumulates once an employee has worked their normal working hours for the settlement period.

This means that payment for unused flex would represent an amount paid for work performed in excess of an employee's normal working hours for a settlement period, hence would not be 'in respect of' ordinary hours of work. Therefore, payment of unused flex leave would not be considered to be OTE (whether paid on termination or not) for the purposes of the superannuation guarantee.

Year of income:  Year ended 30 June 2006

Legislative References:
Superannuation Guarantee (Administration) Act 1992
   subsection 6(1)
   section 14

Related Public Rulings (including Determinations)
Superannuation Guarantee Ruling SGR 94/4

Keywords
Permanent employees
Superannuation Business Line
Superannuation guarantee scheme

Business Line:  Superannuation

Date of publication:  10 March 2006

ISSN: 1445-2782