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Advice

Subject: Superannuation Guarantee

Question 1

Does the 12-hour day rate paid to employees of the employer who carry out project work located on facilities outside the metropolitan area in accordance with the operational workers contract form part of ordinary time earnings (OTE) under subsection 6(1) of the SGAA?

Advice

Yes in part. Part of the allowance paid by the employer to its employees who carry out project work on facilities located outside the metropolitan area in accordance with the operational workers contract is included in OTE. Please see 'Reasons for decision'.

This advice applies for the following period:

1 July 2011 to 30 June 2014

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.

Employees who work within the metropolitan area under an award ordinarily work 7.6 hours per day, unless they are offshore, in which case they work 12 hours.

When employees work outside the metropolitan area they work a 12 hour day and receive an allowance calculated by way of a day rate for compensation rather than the payment of wages.

A clause of the Award states that ordinary hours are 38 hours per week and are not to exceed 152 hours in 28 days. If they exceed 152 hours in 28 days, then overtime rates apply.

Under their contracts employees are paid a day rate rather than overtime when working outside the metropolitan area. The contract does not override this award, but is acceptable because the allowance is greater than overtime which would be payable under the award.

· A clause of the Award states that the ordinary hours of work are to be worked continuously, except for meal breaks, at the discretion of the employer between 6.00 am and 6.00 pm. The spread of hours (6.00 am to 6.00 pm) may be altered by up to one hour at either end of the spread, by agreement between an employer and the majority of employees concerned or, in appropriate circumstances, between the employer and an individual employee.

· A clause of the Award states that subject to the employer's right to fix the daily hours of work for day workers from time to time within the spread of hours referred to in the clause above and the employer's right to fix the commencing and finishing time of shifts from time to time, the arrangement of ordinary working hours must be by agreement between the employer and the majority of employees in the enterprise or part of the enterprise concerned. This does not preclude the employer reaching agreement with individual employees about how their working hours are to be arranged.

· A clause of the Contract states:

"Allowances for work outside the metropolitan area

If you are required to carry out project work located outside the metropolitan area, you will be entitled to the following unless otherwise agreed between parties:

a) a 12-hour day rate which is inclusive of your normal wages and project allowance for each project billable day, including Saturdays, Sundays and public holidays. The day rate is determined by the Manager based on individual project basis.

b) Normal wages for other non-billable project days.

c) A meal allowance only if meals are not provided by the clients;

d) Overtime, if any, on pro-rated day rate

e) Time off in lieu for work carried out on Saturdays, Sundays and public holidays."

Assumptions

No assumptions have been made.

Relevant legislative provisions

Superannuation Guarantee Administration Act (1992) section 6(1).

Question 1

Summary

Superannuation guarantee is payable on part of the offshore allowance paid the employer to its employees who carry out project work on offshore installations or land based drill rigs or facilities located outside the metropolitan area in accordance with the operational workers contract. Please see 'Reasons for decision'.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its eligible employees by the quarterly due date, or pay the superannuation guarantee charge (SGC). The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base.

From 1 July 2008 an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

Definition of ordinary time earnings

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA. It refers to the lesser of:

· the total of the employee's earnings in respect of ordinary hours of work (other than lump sum payments made on termination of employment in lieu of unused sick leave, long service leave or annual leave) and earnings consisting of over-award payments, shift-loading or commission, or

· the maximum contribution base for the contribution period.

The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression.

The Commissioner's views on OTE, as defined in the SGAA, including information on the difference between allowances, expense allowances and reimbursements, are contained in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) which is effective from 1 July 2009.

OTE is generally what employees earn for their ordinary hours of work, including commissions, allowances (excluding expense allowances) and paid leave and do not include reimbursements or overtime payments.

Ordinary hours of work

The meaning of 'ordinary hours of work' is discussed in SGR 2009/2 to be an employee's 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.

An employee's ordinary hours of work are distinct from other hours. In particular it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than 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 those standard hours set out in an award or agreement, are not generally 'ordinary hours of work'. However, if it is evident from an objective assessment of the employee's regular work pattern, that the hours actually worked are consistently different to those prescribed as 'standard', the 'ordinary hours of work' for that employee may be determined based on that regular work pattern.

'Ordinary hours of work' are not limited to hours to be worked between 9am and 5pm, Monday to Friday as they may(depending on the provision in the relevant award or agreement, if any) include hours to be worked at other times, including at night, on weekends or on public holidays.

Earnings 'in respect of ordinary hours of work' means all earnings other than overtime

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 in respect of the employee's 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 reward for the employee's services.

Paragraph 25 of SGR 2009/2 states that all amounts of earnings in respect of employment are in respect of the employee's ordinary hours or 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.

Allowances

Certain specific types of payments are OTE and are additional payments paid to employees to recognise or compensate for certain conditions relating to their employment such as site allowance, dirt allowance and casual loading.

These kinds of payment are OTE except in certain circumstances such as where they relate solely to hours of work other than ordinary hours of work

Calculating OTE

Superannuation Guarantee Ruling 2009/2 (SGR 2009/2) states that allowances paid to employees that recognise or compensate for certain conditions relating to their employment, such as site allowance, dirt allowance, are OTE (except to the extent that they are paid in respect of overtime hours).

Example 3 in SGR 2009 details how an agreement supplanting award removes distinction between ordinary hours and other hours. The employee in this example was employed under an award which stipulates that ordinary hours shall not exceed a maximum of 38 hours per week. The award also states that all time worked in excess of the ordinary hours shall be deemed to be overtime and paid at a rate of time-and-a-half for the first three hours and double time thereafter.

However, the employee and his employer agree under a workplace agreement that he will work 50 hours each week which will be paid at the same hourly rate for all of the 50 hours worked. That rate is inclusive of all allowances and penalties. No lesser amount of hours is identified as 'ordinary', nor is separate provision made for any overtime rate of pay.

The employee duly works his 50 hours per week and is paid at the appropriate single rate under the agreement.

Under the terms of the agreement, no distinction is made between any of the hours the employee works, nor is any component of his pay separately identifiable as overtime. Therefore the employee's ordinary hours of work for superannuation guarantee purposes are 50 hours per week.

Therefore each whole payment to the employee for 50 hours of work is 'earnings in respect of ordinary hours of work' and is OTE.

Conclusion

The Contract stipulates that ordinary working hours for operational staff are 38 hours per week, worked on Monday to Friday worked between 8.00.am - 4.00pm.

Employees working on facilities outside the Metropolitan are paid a 12-hour day rate as per the Contract. This allowance is inclusive of normal wages and a project allowance per project billing day.

The example employee timesheet indicated that an employee working offshore may work 12 hours a day for seven days straight.

The specific hourly rate and amount of the allowances are not identified separately in the day rate paid to employees working under the conditions specified in the Contract. As per example 3 above, there is no distinction made between any of the hours worked nor is any component of the day rate identifiable as an allowance.

The first 38 hours of work between 8.00am and 4.00pm Monday to Friday are earnings in respect of ordinary hours of work and is OTE. Therefore the ordinary hours of work for superannuation guarantee purposes are 38 hours per week.

The hourly rate at which the superannuation guarantee is calculated is the day rate divided by 12 for the periods that the employee is working on facilities outside the metropolitan area.

Part of the allowance is therefore included in OTE for the purposes of subsection 6(1) of the SGAA.

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