Edited version of administratively binding advice

Authorisation Number: 1011989635551

This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached ATO advice fact sheet has more information

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Advice

Subject: Administratively binding advice - ordinary time earnings

Question

Does an allowance, paid to employees of the Employer, form part of 'ordinary time earnings' (OTE) as defined under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1993 (SGAA), for the purpose of calculating the minimum level of superannuation support required under the SGAA?

Advice

The allowance, paid to employees of the Employer, does form part of OTE as defined under subsection 6(1) of the SGAA, where it is paid to the employee in respect of their ordinary hours of work, therefore it will be used for the purpose of calculating the minimum level of superannuation support required under the SGAA.

The allowance, paid to employees, in respect of overtime hours does not form part of that employee's OTE.

This advice applies for the following periods:

Income year ending 2011

Income year ending 2012

Income year ending 2013

Income year ending 2014

The arrangement commences on:

Income year ending 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 is a company whose principal activity is the manufacture and repair of luxury boats.

· The terms of employment for the employees of the Employer are provided in a collective agreement (The Collective Agreement) and an Australian Workplace Agreement (AWA).

· The Collective Agreement came into effect in 2009 and will remain in force for a period of 5 years.

· The AWA was in force for a period of three to five years and will nominally expire in 2011.

The Collective Agreement

1. Clause 2 of the Collective Agreement specifies the intent of the agreement and applies to:

The Employer trading as the ("Company"); and

Any person that is employed by us within one of the classifications contained within this Agreement and who is engaged in the construction, maintenance and repair of our product (including after market).

This Agreement does not apply to Managers, Supervisors (other than Team Leaders), Professional Engineers and Scientists and employees within the New Product Development Design Team.

2. Clause 4 of The Collective Agreement states:

Relationship with Awards

This Agreement will apply to the exclusion of any relevant awards or transitional instruments.

3. Clause 13 of The Collective Agreement states:

Superannuation

The Company will, from the date of this Agreement, make superannuation contributions to the Company's default superannuation fund or a complying fund nominated by you in writing. The superannuation contributions shall be those contributions required under the Superannuation Guarantee (Administration) Act 1992.

4. Clause 17 of The Collective Agreement states:

Travel away from your usual place of work

If, on any day, you are require to work a job away from your usual place of work you will, at our direction, present yourself for work at such job at the usual starting time, but for all time reasonably spent in reaching and returning from such job (in excess of the time normally spent in travelling to and from your home to your usual place of work) you will be paid travelling time, and also any fares reasonably incurred (in excess of those normally incurred in travelling between your home and your usual place of work).

Where you are sent from your usual locality to another and are required to remain away from home, you will be paid travelling time whilst necessary travelling between such localities, and reasonable expenses whilst so absent from your usual locality.

For the purpose this clause, the rate of pay for travelling time is your Basic Hourly Rate, except on Sundays and holidays when it will be time and a half of your Basic Hourly Rate.

Despite anything to the contrary in this clause, the maximum travelling time that we are liable to pay to you is 12 hours out of every 24 hours, or when a sleeping berth is provided by us for all night travel, eight hours out of every 24.

5. Clause 18 of The Collective Agreement states:

Ordinary Hours of Work

a) 38 ordinary hours plus 2 reasonable additional hours per week (or up to 38 ordinary hours per week if you are engaged on a part time or casual basis). At our discretion this may be averaged over a period not exceeding 28 consecutive days; and

b) A maximum of 12 ordinary hours per shift.

If you are not working Shift Work, we may require you to work your ordinary hours between 5:00am and 7:00pm, Monday to Saturday (inclusive). Despite this, we may require you to work outside of this daily spread of ordinary hours (that is 5:00am to 7:00pm) without it being considered to be an Afternoon Shift or Night Shift in the following circumstances:

(a) If the work is continuous with ordinary hours for the purpose, for example, of getting the plant in a state of readiness for production work, then you may be required to work ordinary hours prior to 5:00am; or

(b) Where yourself and other employees in a particular section(s) unanimously agree on the basis that it suits your personal circumstances (for example, in the middle of summer), you may request and we may agree for you to all work your ordinary hours outside of the normal spread of ordinary hours. In such a case either party may withdraw their agreement at any time.

The employee will work in accordance with the Company's relevant rosters as distributed by the Company form time to time. The Company will provide not less than 7 days notice of permanent changes to the roster.

The Company will provide individual employees with not less than 7 days notice of temporary changes to the roster or such notice period as otherwise may be agreed between the Company and the individual employee.

If you are working Shift Work we may require you to work your ordinary hours within the definition of Day Shift, Afternoon Shift and/or Night Shift. If your are working Shift Work, then, except at the regular change-over of shifts, you will not be required to work more than one shift in each 24hr period.

6. Definitions of important terms can be found in Annexure 2 of The Collective Agreement and includes the following:

Definitions

"Day Shift" means any ordinary shift between the hours of 5:00am and 7:00pm, where there is a hand over to an Afternoon Shift or a handover to a Night Shift.

"Afternoon shift" means any ordinary shift finishing after 7:00pm and at or before midnight. To be considered an Afternoon Shift for a particular employee, the employee must continue to work an Afternoon Shift for at least 38 ordinary hours.

"Night Shift" means any ordinary shift finishing subsequent to midnight and before 8:00am. To be considered a Night Shift for a particular employee, the employee must continue to work on a Night Shift for at least 38 ordinary hours.

7. Clause 22 of The Collective Agreement states, in part:

Overtime

Any hours worked which are not ordinary hours (or travelling time) will be considered to be overtime.

You may be required to work a reasonable amount of overtime.

Despite anything else contained in within this agreement the first 2 hours of overtime (up to 40 hours) in any one week (other than overtime worked by you on a Weekend) will be paid for at your basic Hourly Rate.

AWA

1. Clause 2 of the AWA specifies the intent of the agreement states that:

The parties to this agreement ("Agreement") shall be:

a) The Employer trading as (the "Company"); and

b) (the "Employee").

2. Clause 3 of the AWA states:

Relationship with Awards

This agreement applies to the exclusion of any relevant awards or other industrial instructions of any kind.

3. Clause 8 of the AWA states, in part:

Hours of Work (Ordinary Hours and Overtime)

The Employee may be required to work either day or afternoon shifts in accordance with the Company's operational requirements.

8.1 Day Shift Ordinary Hours

Your ordinary hours of work are determined as follows:

You will be required to work 38 hours per week plus 4 reasonable additional hours per week. You acknowledge that it is reasonable for us to require you to work the additional 4 hours in the circumstances particularly having regard to the Company's operational requirements.

The ordinary span of hours for Day Shift shall be Monday to Saturday, between the hours of 6:00am and 6:00pm except for an unpaid meal break of a half an hour. The ordinary span of hours for Day Shift may be varied from time to time in accordance with operational requirements.

8.2 Day Shift Overtime

Any work performed by you for the Company during the weekly pay cycle (excluding any work performed on a Sunday) which is in excess of 42 hours but less than 55 hours will be paid at 1.5 time your ordinary hourly rate.

Any work performed by you for the Company during your weekly pay cycle (excluding any work performed on a Sunday) which is in excess of 55 hours will be paid at 2 times your ordinary hourly rate.

Any work performed by the Employee for the Company on a Sunday will be paid at 2 times the Employee's ordinary hourly rate.

8.3 Afternoon Shift Ordinary Hours

Your ordinary hours of work will be determined as follows:

You will be required to work 38 hours per week plus 2 reasonable additional hours per week. You acknowledge that it is reasonable for us to require you to work the additional 2 hours in the circumstances particularly having regard to the Company's operational requirements.

The ordinary span of hours for Afternoon Shift shall be Monday to Saturday between the hours of 12pm and 12am, except for an unpaid meal break of half an hour. The ordinary span of hours for Afternoon Shift may be varied from time to time in accordance with operational requirements.

8.4 Afternoon Shift Overtime

Any work performed by you for the Company during your weekly pay cycle (excluding any work performed on a Sunday) which is in excess of 55 hours will be paid at 2 times your ordinary hourly rate.

4. Clause 12 of the AWA states:

Superannuation

The Company will, from the time of this Agreement, make superannuation contributions to the ABC Banking Group or a complying fund nominated by you in writing. The superannuation contributions shall be those contributions required under the Superannuation Guarantee (Administration) Act 1992. (Superannuation contributions are base on a 42 hour week for Day Shift Employees and a 40 hour week for Afternoon Shift Employees).

· The Employer commenced paying an allowance to employees in the 2011 income year.

· The allowance is paid to 'compensate' employees when they are required to stay on board overnight to run test or deliver a boat to another Australian city and are unable to pull into port.

· The conditions of the allowance were outlined in an email and stated:

On Board Allowance

The Employer shall pay an allowance of a particular amount per night for each night you are required to stay on board the boat as no other accommodation will be provided. This amount is taxable under ATO guidelines and shall appear as earnings in the employee's payment summary.

· Employees are paid for the time they work while on board as per The Collective Agreement or AWA. Overtime is paid when employees work outside their normal spread of hours.

· Employees are supplied food for the trip or in lieu of that are paid a travel allowance (to cover for meals and incidentals) and supply their own food.

· The Employer is paying superannuation on the allowance and will continue to do so unless advised otherwise.

Contentions

You have provided the following contentions in relation to your application:

· You have looked at Superannuation Guarantee Ruling (SGR) 2009/2 and believe, that as the employees are outside their ordinary hours of work and the allowance is strictly paid because they are away overnight then, the allowance should not be classed as OTE.

Assumptions

No assumptions made.

Relevant legislative provisions

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

Reasons for decision

Summary

Employees are employed under The Collective Agreement or AWA that operates to the exclusion of any award and covers all of the employment conditions of those employees. The OTE for employees is clearly defined in clause 18 of The Collective Agreement and clause 8 of the AWA.

Under clause 18 of The Collective Agreement an employee's OTE is to be taken as 38 ordinary hours plus 2 reasonable additional hours per week, averaged over a period not exceeding 28 consecutive days and for a maximum of 12 ordinary hours per shift.

For employees not on shift work the ordinary hours that can be worked are between 5:00am and 7:00pm from Monday to Saturday (inclusive).

For a Day Shift worker the ordinary hours are between the hours of 5:00am and 7:00pm, where there is a hand over to an Afternoon Shift or a hand over from a Night Shift.

For Afternoon Shift the ordinary hours are for shifts ending after 7:00pm and at or before midnight and for a maximum of 12 ordinary hours per shift from Monday to Saturday (inclusive).

For Night Shift workers the ordinary hours are shifts ending after midnight and at or before 8am for a maximum of 12 ordinary hours per shift.

Under clause 8 of the AWA a Day Shift employee's OTE is to be taken as 38 ordinary hours plus 4 reasonable additional hours per week. These ordinary hours can be worked Monday to Saturday between 6:00am and 6:00pm. An Afternoon Shift employee's OTE is to be taken as 38 ordinary hours plus 2 reasonable additional hours per week. These ordinary hours can be worked Monday to Saturday between 12:00pm and 12:00am.

Based on the fact that the On Board Allowance is paid only when an employee takes a boat out to sea overnight to run tests on equipment or to deliver a boat to another city in Australia, and if this work is outside the employee's OTE as stipulated under The Collective Agreement and the AWA, the allowance does not form part of the employee's OTE and as such superannuation contributions of 9% or greater will not be required to be paid on the allowance.

Detailed reasoning

Ordinary time earnings

The 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.

Ordinary hours of work

The phrase 'ordinary hours of work' is not defined in the SGAA. 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 SGR 2009/2.

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 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.

Earnings in respect of ordinary hours of work

An employee's earnings for the purposes of the definition of OTE in the SGAA is the remuneration paid to the employee as a reward for the employee's services.

Paragraph 25 of SGR 2009/2 explains what is meant by the phrase 'in respect of ordinary hours of work'. An amount of earnings in respect of employment are in respect of an employee's ordinary hours of work unless it is payment for overtime, or amounts otherwise referable to only overtime hours or to other hours that are not ordinary hours of work.

The Commissioner's view is that the expression 'in respect of ordinary hours of work' was intended to ensure that overtime payments and cognate amounts, were excluded from the earnings base.

Allowances and loadings

An allowance is a payment of a definite predetermined amount to cover an estimated expense or to recognise or compensate for certain conditions relating to employment. For example site, height, dirt or danger allowances.

These allowances form part of the employee's OTE and as such superannuation contributions of 9% or greater would be required to be paid on the allowance.

Application to the circumstances

You have stated in your application that the allowance is paid to 'compensate' employees who take a boat out overnight to run test or to deliver the boat to another city in Australia and are not able to pull into port for the night.

The Collective Agreement specifies that day shift workers will work a maximum of 12 hours between 5am and 7pm and that afternoon shift workers will also work a maximum of 12 hours finishing not later than at or before midnight. This Agreement also states that employees not on shift work will work a maximum of 12 hours per day between 5am and 7pm. Therefore a payment made to employees, engaged under these clauses, due to the fact the employee was required to stay on board a boat overnight, would not be a payment 'in respect of ordinary hours of work' and subsequently does not form part of OTE for the purposes of the SGAA.

However, as night shift workers ordinary hours, as specified in the Collective Agreement, are after midnight and before 8am the On Board Allowance would form part of their OTE and as such superannuation contributions of 9% or greater would be required to be paid in this case.

The AWA refers to day shift ordinary hours which are between 6am and 6pm and afternoon shift ordinary hours between 12pm and 12am. An On Board Allowance paid to employees engaged under either of these clauses would not form part of the employees OTE as a payment to compensate the employee for being required to stay on the boat overnight would not be an amount 'in respect of' ordinary hours of work.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).