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Advice

Subject: Superannuation Guarantee - Ordinary time earnings

Question 1

For the 2008-09 and 2009-10 income years, where the conditions of employment for full-time employees of The Employer are governed by The Employer's Collective Agreement (the Collective Agreement), are the 'ordinary hours of work' of the employee, for the purposes of calculating 'ordinary time earnings' (OTE) as defined under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1993 (SGAA), limited to a maximum of 38 hour per week?

Advice/Answers

No. Under the specific terms of the Collective Agreement covering employees of The Employer, an employee's ordinary hours of work are described as 38 hours a week averaged over 52 weeks (emphasis added), therefore all hours worked by the employee (including additional hours requested in writing) will be ordinary hours of work until an employee has worked a total of 1,976 hours within any rolling 52 week period (i.e. 38 hours x 52). For the purposes of calculating OTE in accordance with the SGAA, the ordinary hours of work for an employee of The Employer will, therefore, be limited to a maximum of 1,976 hours in any rolling 52 week period rather than a maximum of 38 hours per week.

This ruling applies for the following period

01/07/2008 - 30/06/2009

01/07/2009 - 30/06/2010

The scheme commenced on

01/07/2008

Relevant facts

The terms of employment employees of The Employer are provided in a collective bargaining agreement. The Collective Agreement was in force during the 2008-09 and 2009-10 financial years.

Clause 1 of the Collective Agreement specifies the intent of the agreement. The relevant provisions are specified as follows:

(a) This Agreement will form the complete agreement covering all terms and conditions of employment of the employee. It will operate to the exclusion of any and all other agreements or awards which may otherwise, but for this clause, apply to the employees of the employer.

(b) Without limiting subsection 1(a) above, this Agreement excludes protected award conditions as to rest breaks, incentive-based payments and bonuses, annual leave loading, public holidays, monetary allowances, overtime, shift work loading, penalty rates and other matters prescribed by the WRA. The employee's entitlements, if any, to these matters are specified in the Agreement.

(d) This Agreement will provide the employee with an opportunity to work 12 hour shifts.

Clause 7 of the Collective Agreement states:

Hours of work

The maximum ordinary hours of work will not exceed 38 hours per week averaged over a 52 week period.

The ordinary hours of work will be in accordance with a roster which will include Saturdays, Sundays and Public Holidays…

Clause 8(a) of the Collective Agreement states:

'…The employee will be paid their ordinary hourly rate for all hours worked with the exception of work performed on a public holiday…'

Clause 8(d) of the Collective Agreement states:

'…Fulltime employees are entitled to 4 weeks of paid annual leave for each completed 12 months of employment plus leave loading of 17.5%.'

Part-Time employees are entitled to 4 weeks of paid annual leave (on a pro-rata basis) for each completed 12 months of employment. Payment for annual leave and leave loading is incorporated in the employee's ordinary hourly rate.

Clause 9 of the Collective Agreement states:

'...The superannuation contribution made by the employer shall be that contribution required under the Superannuation Guarantee (Administration) Act 1992 (Cth). At the date of this Agreement, the required contribution is 9% of the employee's ordinary hourly rate, annual leave and sick leave taken as listed in Annexure A to this Agreement…'

Clause 26 of the Collective Agreement states:

In accordance with the provisions of clause 7 of this Agreement, employees may requested [request] to be rostered for additional hours to meet my personal and family commitments. Such requests must be made in writing.

Additional hours will be paid as per clause 8(a) of this Agreement…

Clause 17 of the award relevant to employees in this industry (the Award) states:

17. ORDINARY TIME HOURS OF WORK

17.1 Roster cycles

17.1.1 Subject to 17.9 and subject to the exceptions hereinafter provided, the ordinary hours of work are an average of 38 per week to be worked on one of the following bases:

17.1.1 (a) 76 hours within a roster cycle not exceeding fourteen consecutive days;

17.1.1 (b) 114 hours within a roster cycle not exceeding twenty-one consecutive days;

17.1.1 (c) 152 hours within a roster cycle not exceeding twenty-eight consecutive days;

17.1.1 (d) 304 hours within a roster cycle not exceeding fifty six consecutive days.

17.1.2 The ordinary hours prescribed in this clause must be worked in shifts of no more than ten consecutive hours with not more than one shift in any period of twenty four hours. However, a new employee (other than a casual employee) on engagement may work up to three shifts as part of an initial training period. Such shifts must be paid for at the appropriate rate of pay prescribed by this award but must not form part of the normal roster cycle provided for in this clause. The normal roster cycle must commence on the fourth shift…

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 - subsection 6(1)

Superannuation Guarantee (Administration) Act 1992 - section 12

Superannuation Guarantee (Administration) Act 1992 - section 17

Superannuation Guarantee (Administration) Act 1992 - section 19

Superannuation Guarantee (Administration) Act 1992 - section 22

Superannuation Guarantee (Administration) Act 1992 - section 23

Reasons for decision

Summary

Employees of The Employer are employed under a collective agreement that operates to the exclusion of any award and covers all of the employment conditions of those employees. An employee's ordinary hours of work under this agreement are 38 hours a week averaged over a 52 week period. The agreement also allows employees to undertake additional hours of work where the employee has requested, in writing to the employer, additional hours of work.

The Commissioner considers that, in any rolling 52 week period, all hours worked by an employee of The Employer are ordinary hours of work unless the employee has already worked a total of 1,976 hours (38 hours x 52) in that period

When calculating the total of ordinary hours of work undertaken by an employee in a 52 week period (for the purposes of determining whether or not the employee has undertaken a total of 1,976 ordinary hours of work in a 52 week period), certain hours relating to leave and public holidays will need to be included, even if those hours do not result in earnings that meet the definition of OTE. Additional hours of work requested by the employee in writing will also be included in this total.

The Employer will have a superannuation guarantee shortfall if, in respect of each of its security guard employees, it has not made superannuation contributions equal to or greater than 9% of the employee's earnings arising from the ordinary hours worked by that employee (unless those earnings are not OTE under the SGAA).

Detailed reasoning

The Superannuation Guarantee (Administration) Act 1992 (SGAA) contains provisions designed to encourage employers to provide employees with a minimum level of superannuation support. If an employer fails to provide the minimum level of superannuation support to an employee, as stipulated in the SGAA, they may have a superannuation guarantee shortfall.

Generally, where an employer makes superannuation contributions equal to or greater than 9% of the employee's OTE to a retirement savings account (RSA) or a complying superannuation fund of the employee's choice (in accordance with the choice of fund requirements), no superannuation guarantee shortfall will arise. It should be noted that these contributions must also be made within prescribed timeframes.

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA. In very broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work. Payments for work performed outside the ordinary hours of work, such as overtime payments, are not OTE.

The phrase 'ordinary hours of work' is not defined in the SGAA. For the income year ended 30 June 2009 the Commissioner's view on the meaning of 'ordinary hours of work' can be found in Superannuation Guarantee Ruling SGR 94/4 (SGR 94/4). For the income year ended 30 June 2010 and later income years the Commissioner's view on the meaning of 'ordinary hours of work' is expressed in Superannuation Guarantee Ruling SGR 2009/2 (SGR 2009/2).

Paragraphs 7 and 8 of SGR 94/4 state:

7. The ordinary hours of work may be specified in a statute or under an industrial award. If so, the ordinary hours specified are also the ordinary hours of work under the SGAA.

8. 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. The hours agreed will be determined in the light of all the circumstances (for example, hours actually worked, the industry norm, or what is contained in any written agreement).

Paragraph 13 of 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.

As can be seen from paragraph 8 of SGR 94/4 and paragraph 13 of SGR 2009/2, where an employee's employment conditions are governed exclusively by a written agreement (i.e. the agreement overrides or operates to the exclusion of any document, legislative provision, or industrial award), the employee's ordinary hours of work will generally be the hours specified as his or her ordinary hours of work under that agreement.

For the 2008-09 and 2009-10 income years, no superannuation guarantee shortfall will arise where:

· an employee's employment conditions are governed exclusively by a written agreement entered into between the employee and employer

· the employer makes superannuation contributions to an RSA or complying superannuation fund of the employee's choice, and

· those contributions are equal to or greater than 9% of the employee's earnings in respect of the employee's ordinary hours of work (unless those earnings are not OTE under the SGAA).

Your situation

Clause 1(a) of the Collective Agreement for employees of The Employer states:

This Agreement will form the complete agreement covering all terms and conditions of employment of the employee. It will operate to the exclusion of any and all other agreements or awards which may otherwise, but for this clause, apply to employees of the employer.

Clause 1(b) of the Collective Agreement for employees of The Employer states:

Without limiting subsection 1(a) above, this Agreement excludes protected award conditions as to rest breaks, incentive-based payments and bonuses, annual leave loading, public holidays, monetary allowances, overtime, shift work loading, penalty rates and other matters prescribed by the WRA. The employee's entitlements, if any, to these matters are specified in the Agreement.

Clauses 1(a) and 1(b) in the Collective Agreement that covers employees of The Employer make it clear that:

· the Collective Agreement operates to the exclusion of all other agreements or awards, and

· all employee entitlements and employment conditions are contained in the Collective Agreement.

As the employment conditions of employees of The Employer are governed only by the Collective Agreement, the company's superannuation guarantee obligations in respect of each employee will be determined based on the ordinary hours of work specified in the Collective Agreement.

Ordinary hours of work

Clause 7 of the Collective Agreement states:

'…The maximum ordinary hours of work will not exceed 38 hours per week averaged over a 52 week period.

The ordinary hours of work will be worked in accordance with a roster which will include Saturdays, Sundays and Public Holidays…'

The Commissioner must take a literal view of the terms specified in the Collective Agreement, rather than consider what may have been intended during the drafting and negotiating.

Therefore, in considering what is meant by the wording 'will not exceed 38 hours per week averaged over a 52 week period', it is essential to consider the meaning of the word 'averaged'.

According to the Macquarie Dictionary, the word 'averaged' means:

· 'to find an average value for; reduce to a mean'

· 'to result in, as an arithmetical mean; amount to, as a mean quantity…'

According to the Macquarie Dictionary, an 'arithmetic mean' is:

· 'the mean obtained by adding several quantities together and dividing the sum by the number of quantities. For example, the arithmetic mean of 1, 5, 2, 8 is 4.'

It is important to note that the same arithmetic mean can be achieved regardless of the magnitude of the individual quantities making up the sum of the quantities (the total) as long as the total and the number of quantities used in each equation is the same. For example, if the quantities quoted in the Macquarie Dictionary example were 1, 2, 1 and 12, the arithmetic mean would still have been 4.

Using the definition of the word 'averaged', the wording of the sentence in clause 7 of the Collective Agreement, written in a slightly different manner (but meaning the same) could have been:

In a 52 week period, the maximum ordinary hours of work will not exceed an arithmetic mean of 38 hours per week.

Given that an arithmetic mean is calculated by dividing the total of the quantities by the number of quantities, it is possible to calculate the total of the quantities when only provided with the arithmetic mean and the number of quantities (by multiplying the two figures together). Again using the Macquarie Dictionary example, the arithmetic mean was 4 and the number of quantities was 4 so the total of the quantities was 16 (4 x 4 = 16).

Using the figures provided in clause 7 of the Collective Agreement (52 weeks being the number of quantities and 38 hours per week being the arithmetic mean), the total of the quantities (the total being the maximum ordinary hours of work in a 52 week period) is 1,976 hours (52 weeks x 38 hours per week = 1,976 hours).

Given this, the sentence in clause 7 of the Collective Agreement could be written as:

'…The maximum ordinary hours of work will not exceed 1,976 hours over a 52 week period...'

In a letter from your representative, a statement was made to the effect that, because employees of The Employer receive 38 hours of pay per week while on annual leave, the 'ordinary hours of work' of such employees must be 38 hours per week. The Commissioner does not agree with this conclusion. Clause 8(d) of the Collective Agreement provides that fulltime employees are entitled to 4 weeks of paid annual leave for each 12 months of employment completed. Where an employee is required to work an average of 38 hours per week over a 12 month period (as is required under clause 7 of the Collective Agreement), it would be reasonable to expect that an employee's entitlements in relation to annual leave would be based on this average number of hours per week. This is vastly different to the concepts that need to be considered for the purposes of determining an employee's ordinary hours of work for superannuation purposes.

At point (v) in 'Appendix A' to the letter from your representative, the following statements were made:

'…the agreement which governs the conditions of employment (i.e. the Collective Agreement) prescribes 'ordinary hours of work' as being limited to 38 hours per week…

…the use of a shift roster by The Employer means that full-time employees may regularly work in excess of 38 hours per week…'

However, as established in the preceding paragraphs, the Commissioner does not consider that the 'ordinary hours of work' of employees of The Employer are limited to 38 hours per week, but rather to a total of 1,976 hours in any rolling 52 week period. The Commissioner considers that, where an employee regularly works in excess of 38 hours per week, the hours worked would be ordinary hours of work unless:

· the maximum ordinary hours of work stipulated in the Collective Agreement (1,976 hours in a 52 week period) had already been worked by the employee in the 52 week period up to and including the day in question, or

· the hours worked were clearly identifiable as hours other than ordinary hours of work.

When we consider clause 17.1 of the Award and the similar phrase 'ordinary hours of work are an average of 38 per week' as used in defining ordinary hours of work, it is clear from subclauses 17.1.1 to 17.1.2 that there is a limitation placed on the 'average' to allow the 38 hours per week to be spread as 76 hours over fourteen consecutive days, or 114 hours over twenty one consecutive days and so on.

Ignoring any other limiting clauses in the Award, this would, for example, allow an employee to work an average of 38 hours per week by working 60 hours in one week and 16 hours in the second week - the total hours worked in that fourteen day period would be 76 hours as allowed under clause 17 of the Award.

The terms of the Collective Agreement that is the subject of this advice, however, are not so limiting, and allow for the 38 hours per week to be averaged over 52 weeks.

The Commissioner consider that, where leave is taken in place of ordinary hours of work (i.e. the hours of leave replace ordinary hours of work), those hours of leave will count towards the total ordinary hours worked by the employee for the purposes of determining whether the employee has worked the maximum ordinary hours of work stipulated in the Collective Agreement. This is the case even if the leave does not give rise to OTE for the purposes of the SGAA. For example, unpaid sick/carer's leave would give rise to OTE as no earnings arise from, or in respect of, that leave, but any hours of unpaid sick/carer's leave taken by an employee would count towards the employee's maximum ordinary hours of work stipulated in the Collective Agreement because it is taken in place of ordinary hours of work. The Commissioner considers that the same principle applies to any hours paid for public holidays on which the employee does not work.

In summary, for the 2008-09 and 2009-10 income years, unless the ordinary hours worked (including hours of leave taken in place of ordinary hours of work and paid public holidays on which the employee did not work) by an employee of The Employer exceeds 1,976 hours, The Employer will, in order to avoid a superannuation guarantee shortfall, need to make superannuation contributions in respect of that employee equal to 9% of their earnings arising from these ordinary hours of work (assuming that the earnings are OTE under the SGAA).
Hours other than ordinary hours (additional hours)

Clause 26 of the Collective Agreement states:

'…In accordance with the provisions of clause 7 of this Agreement, employees may requested [request] to be rostered for additional hours to meet my personal and family commitments. Such requests must be made in writing…

…I will inform the employer if I no longer wish to take advantage of these additional hours or if I am unavailable to be rostered for any one period…'

It appears that the intent of clause 26 of the Collective Agreement is to provide employees with an opportunity to request hours of work in addition to the ordinary hours of work provided for in clause 7 of the Collective Agreement.

However, clause 26 of the Collective Agreement specifically notes that a request for these additional hours must be made 'in accordance with the provisions of clause 7', indicating that, while additional hours may be requested, the employee's ordinary hours of work would include these 'additional hours'. The employee's total ordinary hours of work (including 'additional hours') would still be limited to an average of 38 hours per week over a 52 week period (in accordance with clause 7 of the Collective Agreement).

It should be note that, where an employee works 'additional hours' in a 52 week period, The Employer's superannuation guarantee obligations in respect of that employee would be no different to its obligations if the employee chose not to work 'additional hours' - The Employer's superannuation guarantee obligations in respect of the employee would be limited to the OTE from a maximum of 1,976 hours in that 52 week period in either scenario.

ATO view documents

Superannuation Guarantee Ruling SGR 94/4 (SGR 94/4)

Superannuation Guarantee Ruling SGR 2009/2 (SGR 2009/2).

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