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Edited version of administratively binding advice
Authorisation Number: 1011979950296
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Subject: Superannuation Guarantee
Question
What are the Employer's employees' ordinary hours of work for the purpose of calculating ordinary time earnings (OTE) in respect to the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Advice
Based on the information provided an employees' 'ordinary hours of work' for the calculation of OTE in respect to the SGAA will vary depending on the agreed span of ordinary hours between the employee and the Employer. The respective 'ordinary hours of work' of individuals may be one of the following:
§ ordinary hours worked within the time span 6am to 6pm on Monday to Friday, up to an average of 38 hours per week in a nominated work cycle as per the "The Employers Enterprise Agreement" (EA) or
§ ordinary hours worked within the agreed alternate ordinary hours, up to an average of 38 hours per week in a nominated work cycle as per the EA.
This advice applies for the following periods:
Financial year ended 30 June 2012
Financial year ended 30 June 2013
The arrangement commences on:
1 July 2011
Relevant facts and circumstances
Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.
The employer and their employees are party to an enterprise agreement (EA)
The EA applies to the employer and employees in the performance of all work in or in connection with the employer's work.
The purpose of the EA is stated at a particular Clause.
The EA shall apply from the date of approval with Fair Work Australia for three years.
A clause of the EA states the following about 'Flexibility':
The parties to the agreement will be bound by the flexibility term.
A schedule of the EA sets out the Flexibility Terms. We have outlined the relevant sections to you.
A subclause of the EA sets the pay rates for 'Workshop Rate (casual weekly rate shown as an indication only)'.
A subclause of the EA sets the pay rates for 'Project work away from Workshop environment'.
The EA includes the following definition of hours of work
Hours of Work and Overtime
Ordinary Hours
The nominal ordinary hours of work shall be an average of X hours per week over a nominated work cycle to be worked from 6.00 am to 6.00 pm Monday to Friday.
It will be available to the employer and affected employees to agree to work alternate hours of work that provide an average of X hours a week over a nominated cycle.
The EA includes the following definition of additional hours/overtime:
Additional Hours I Overtime
The first 2 additional hours of overtime each week will be paid at the rate prescribed
All time worked by an employee in excess of the nominal work cycle of 40 weekly hours or 8 daily hours or outside of the span of ordinary hours of work shall be paid as overtime at the following rates:
• Monday to Saturday at the rate of time and a half for the first two hours and double time thereafter.
• All time worked on Sunday shall be paid at double time.
The Employer employs staff on two work sites.
On work site one the employees can work a 35 day cycle:
§ The 35 day cycle can start on any day of the week.
§ The days on and days off are consecutive.
§ The employees work anything from 10 to 12 hours in a day.
§ They get paid weekly.
§ They are not paid any overtime. They are paid a higher rate to compensate for no overtime payments on Saturday and Sunday.
§ Hours of work are not set. They work as required.
§ Employees working this cycle are covered under the EA and there are no addendums to the EA. Both parties are applying the EA but varying it as the EA allows. The employees will be better off overall in relation to the terms and conditions of his or her employment as a result of the arrangement.
§ You negotiate different rates for each contract.
§ They work normal ordinary hours 6am to 6pm.
On work site one the employees can also work a 7 day cycle:
§ 6 days On 1 Day Off -Monday to Saturday on; Sunday Off
§ They cycle commences on a Monday and finishes on a Sunday.
§ The days on and days off are consecutive.
§ The employees work anything from 10 to 12 hours in a day.
§ They get paid weekly.
§ The employees on this work cycle work on agreed rates with no overtime paid. They are paid a higher rate to compensate for no overtime payments on Saturday.
§ Employees working this cycle are covered by the EA but you do negotiate different rates for each contract. There are no addendums for this in the EA. Both parties are applying the EA but varying it as the EA allows. The employees will be better off overall in relation to the terms and conditions of his or her employment as a result of the arrangement.
§ The employees are asked to work whatever is required between the hours of 6am to 6pm Monday to Saturday.
On work site two the employees work Monday to Saturday, usually 10 hour or less a day. The work cycle starts on a Monday and finishes on a Saturday and the employees on this work cycle follow 'normal ordinary hours of work' - 6.00am to 6.00pm Monday to Friday as per a clause of the EA. They get paid overtime after the first 8 hours on Monday to Friday and they get a different rate for Saturday and Sunday if they work as per the EA.
In a written response you state that a clause of the EA contains a typing error and where it mentions another Clause it actually should be two different clauses.
Relevant legislative provisions:
Superannuation Guarantee (Administration) Act 1992 Subsection 6(1).
Reasons for decision
Summary
The 'ordinary hours of work' of individuals employed by the Employer under the EA will vary depending on their individual flexible agreements. The respective 'ordinary hours of work' of individuals may be hours worked within the time span 6am to 6pm on Monday to Friday, up to an average of 38 hours per week in a nominated work cycle as per the EA or ordinary hours worked with in the agreed alternate 'ordinary hours', up to an average of 38 hours per week in a nominated work cycle as per the EA.
Any payments made in respect of these 'ordinary hours of work' up to the average of 38 hours per week in a nominated work cycle will therefore be considered OTE for the purposes of the SGAA, irrespective of the rate of pay.
Detailed reasoning
Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) 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'.
Ordinary time earnings
The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. The amendments which apply from 1 July 2008 have the effect that all employers now calculate their SGAA liability against OTE, as defined in the SGAA.
OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA. It means:
(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 kind 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, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997;
(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.
The Commissioner's current view on what represents OTE is contained in Superannuation Guarantee Ruling SGR 2009/2 which replaced Superannuation Guarantee Ruling SGR 94/4.
Commissioner's view on what earnings are taken to be made 'in respect of ordinary hours of work' is provided in paragraphs 25 and 26 of SGR 2009/2. They state:
26. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect employment and are not OTE because they are not in respect of any particular hours of work.
26. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are 'earnings in respect of ordinary hours of work'. This could in some cases be a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement.
Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless they are remuneration for overtime or other hours that are not ordinary hours of work.
Earnings in respect of ordinary hours of work
For a payment to constitute 'earnings in respect of ordinary hours of work', the payment must be considered 'earnings' of the employee, and the earnings must be paid in respect of the employee's 'ordinary hours of work'.
In the context of the SGAA, the term 'earnings' refers to the remuneration paid to an employee as a reward for the employee's services, the practical effect of this being that earnings means 'salary and wages' (paragraph 12 of SGR 2009/2).
Paragraph 25 of SGR 2009/2 explains what is meant by the phrase 'in respect of ordinary hours of work'. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work.
As further explained in paragraph 226 of SGR 2009/2, the Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours' and therefore OTE. The Commissioner's view is that the expression, 'in respect of ordinary hours of work' was intended to ensure overtime payments, and cognate (similar or related) amounts, were excluded from the earnings base.
It was not intended to exclude amounts paid at a worker's ordinary time rate solely on the ground that they were not earned as a direct result of actually working particular hours in ordinary time.
Ordinary hours of work
The meaning of 'ordinary hours of work' is discussed in paragraphs 13 to 18 of SGR 2009/2 and further clarified in paragraphs 189 to 210 of SGR 2009/2.
Paragraph 13 of SGR 2009/2 provides that 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.
The document need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) that the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.
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' (paragraph 15 of SGR 2009/2).
However, where the 'ordinary hours of work' are not specified in a relevant award or agreement, the ordinary hours of work are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. Where it is not possible or practicable to determine the normal, regular, usual or customary hours of the employee's work, the actual hours worked should be taken to be the ordinary hours of work (paragraphs 16 and 17 of SGR 2009/2).
Ordinary hours of work are not limited to hours worked between 9am and 5pm, Monday to Friday. Depending on the provision in the award or agreement, if any, they may include hours to be worked at other times, including at night, on weekends and on public holidays.
Application to your Situation
In this case, the 'ordinary hours of work' are specified in the EA at a clause, as an average of 38 hours per week over a nominated work cycle with the spread of hours stipulated as being between 6:00am to 6:00pm on Monday to Friday. However, the EA also makes provision for the spread of ordinary hours to be varied or amended by agreement up to an average of 38 hours a week. Therefore the 'ordinary hours of work' will be those hours specified in the EA, as varied by the parties.
Where the working arrangements of individual employees are consistent with the operation of the EA(so varied), the employees will be covered by the EA within the meaning of paragraph 13 of SGR 2009/2.
However if it is evident from an objective assessment of an employees regular work pattern that the hours actually worked are not consistent with the operation of the EA(so varied) the 'ordinary hours of work 'for that employee may be determined based on that regular work pattern.
Work Site 1
The employees on work site one can work various work cycles which have in common that they get paid different rates and no overtime. It appears that individual employees are entering into contracts which have different pay rates and work hours then those in the EA, using the flexibility clause in the EA. They are paid a higher rate to compensate and are better off overall in relation to terms and conditions as a result of the arrangement.
35 day work cycle
The cycle can start on any day of the week and employees can work anything from 10 to 12 hours in a day. They are not paid overtime, however they are paid a higher rate to compensate for no overtime payments. The employees will be better off overall in relation to the terms and conditions of his or her employment as a result of the arrangement. They work normal ordinary hours 6am to 6pm.
A clause of the EA states:
The nominal ordinary hours of work shall be an average of 38 hours per week over a nominated work cycle to be worked from 6.00 am to 6.00 pm Monday to Friday.
It will be available to the employer and affected employees to agree to work alternate hours of work that provide an average of 38 hours a week over a nominated cycle.
Therefore, in considering what is meant by the wording 'average of 38 hours per week over a nominated work cycle' and 'an average of 38 hours a week over a nominated cycle', it is essential to consider the meaning of the word 'averaged'.
Using the figures provided in a clause of the EA and the 35 day cycle worked on work site one (5 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 5 week period) is 190 hours (5 weeks x 38 hours per week =190).
Therefore, as established in the preceding paragraphs, the Commissioner does not consider that the 'ordinary hours of work' of employees of the Employer working the 35 day cycle on work site one are limited to 38 hours per week, but rather to a total of 190 hours in any rolling 5 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 EA (190 hours in a 5 week period) had already been worked by the employee in the 5 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.
This would, for example, allow an employee to work an average of 38 hours per week over the 35 day nominated work cycle by working 47.5 hours in each of the first 4 weeks and 0 hours in the fifth week - the total hours worked in that 35 day period would be 190 hours as allowed under a clause of the EA.
Therefore the employees would be entitled to superannuation on an average of 38 hours per week on this 5 week work cycle as per a clause of the EA.
If they have agreed to the nominal ordinary hours of 6am to 6pm Monday to Friday then all hours worked on Saturday (or Sunday if worked) and outside the time span of 6am to 6pm on Monday to Friday would not be 'ordinary hours of work' for OTE purposes.
If the employee and the Employer have agreed to alternate ordinary hours then any hours outside of the agreed alternate ordinary hours would not be 'ordinary hours of work' for OTE purposes.
Also any hours with in the nominal ordinary hours of 6am to 6pm Monday to Friday or the agreed alternate ordinary hours which are above the average 38 hours per week in the 5 week cycle, as per the individual employee agreement, would also not be 'ordinary hours of work' for OTE purposes.
7 day work cycle
The employees on work site one can work a 7 day work cycle, Monday to Saturday on and Sunday off, usually 10 to 12 hours a day. They do not get paid overtime. They are paid a higher rate to compensate and are better off overall in relation to terms and conditions as a result of the arrangement. The employees are asked to work whatever is required between the hours of 6am to 6pm Monday to Saturday.
Therefore they would be entitled to superannuation on an average of 38 hours per week on this one week work cycle as per a clause of the EA.
If they have agreed to the nominal ordinary hours of 6am to 6pm Monday to Friday then all hours worked on Saturday (or Sunday if worked) and outside the time span of 6am to 6pm on Monday to Friday would not be 'ordinary hours of work' for OTE purposes.
If the employee and the Employer have agreed to alternate ordinary hours then any hours outside of the agreed alternate ordinary hours would not be 'ordinary hours of work' for OTE purposes.
Also any hours with in the nominal ordinary hours of 6am to 6pm Monday to Friday or the agreed alternate ordinary hours which are above the 38 hours per week, as per the individual employee agreement, would also not be 'ordinary hours of work' for OTE purposes.
Work Site 2
The employees on work site two work a 7 day work cycle, Monday to Saturday on and Sunday off, usually 10 hours or less a day. They get paid overtime as per the EA.
Therefore they would be entitled to superannuation on an average of 38 hours per week on this one week work cycle as per a clause of the EA.
If they have agreed to the nominal ordinary hours of 6am to 6pm Monday to Friday then all hours worked on Saturday (or Sunday if worked) and outside the time span of 6am to 6pm on Monday to Friday would not be 'ordinary hours of work' for OTE purposes.
If the employee and the Employer have agreed to alternate ordinary hours then any hours outside of the agreed alternate ordinary hours would not be 'ordinary hours of work' for OTE purposes.
Also any hours with in the nominal ordinary hours of 6am to 6pm Monday to Friday or the agreed alternate ordinary hours which are above the 38 hours per week, as per the individual employee agreement, would also not be 'ordinary hours of work' for OTE purposes.
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