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Subject: Lump sums paid for rostered days off on termination of employment and ordinary time earnings
Are payments paid on termination for unused, untaken rostered days off (RDO) accrued to employees covered by an award, considered ordinary time earnings (OTE) for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Advice/Answers
Payment upon termination for unpaid, untaken RDOs which has accrued under the award and during the ordinary working hours are considered to be OTE and therefore create a superannuation guarantee obligation.
This advice applies for the following period/s:
year ending 30 June 2010
The arrangement commences on:
1 July 2009
Relevant facts and circumstances
You are an employer.
You applied for a private ruling requesting advice on whether payments paid on termination for unused, untaken rostered days off accrued to employees covered by an award are considered ordinary time earnings
In the application for the private ruling you stated that:
· the salary is paid on a fortnightly basis and is based on an average of 76 hours worked per fortnight
· employees are allowed to bank the RDO and receive payment for these hours on termination of employment
· if an employee is directed to work on their RDO they are entitled to a payment of overtime and the RDO is not banked.
Your employees are covered by and employee award (the award) and an operational staff award (the operational award)
You employ full-time employees who work 38 hours per week.
The award details your superannuation obligations in respect of your employees
The award also allows for the employee to receive payment for any unused, untaken rostered days on termination of employment.
The award contains the following information:
· The contract hours for the day for a full time employee are one fifth of the full time contract hours, as defined in this award. For a part time staff member, contract hours for the day means the hours usually worked on the day.
· Full time contract hours are the standard weekly hours, that is, 35 or 38 hours per week, are required to be worked.
· The normal hours of duty for a staff member working standard hours are the fixed hours of duty, with an hour for lunch, worked in the absence of flexible working hours;
· A 'Rostered Day Off' means a day off in a regular cycle at a time operationally convenient.
· The standard hours are set and are regular hours of operation. Standard hours are generally the hours which were in operation prior to the introduction of flexible working hours or have been determined as standard hours for the organisation since the introduction of flexible working hours.
· Staff members who work a 38 hour week and who are entitled to a rostered day off in a regular cycle. The rostered day off will accrue at a rate of 0.4 of an hour each 8 hour day.
· All paid ordinary working time and paid leave count towards accrual of time for the rostered day off.
On or about you spoke to an ATO Officer who requested a copy of the operational award.
You supplied a copy of the operational award.
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 subsection 6(1)
Reasons for decision
Issue 1
Therefore, where the employee receives a payment upon termination for unpaid, untaken RDO which have accrued under the appropriate agreement and during their ordinary working day would be considered to be OTE and therefore creates a superannuation guarantee obligation.
Explanation
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) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1936 (ITAA);
(C) (Repealed by no 15 of 2007)
(ii) earnings consisting of over-award payment, shift loading or commission;
Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'.
SGR 2009/2 also states that salary or wages received by an employee in respect of periods of paid leave or for any RDO is simply a continuation of their ordinary time pay and therefore is OTE. It does not matter whether the entitlement to take the RDO accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer's discretion.
Therefore, where the employee receives a payment upon termination for unpaid, untaken RDO which have accrued under the appropriate agreement and during their ordinary working hours would be considered to be OTE and therefore give rise to a superannuation guarantee obligation.
Where the payment for unpaid, untaken RDO represents an amount paid for work performed in excess of an employee's normal working hours, it is considered that this is not 'in respect of' ordinary hours of work. Therefore, payment on termination of unused, unpaid RDO arising as a result of these circumstances would not be considered to be OTE and would not give rise to a superannuation guarantee obligation.
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