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Advice

Subject: Fares and travel allowance and ordinary time earnings

The fares and travelling allowance paid to employees under the Award does form part of ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

Facts

The employer operates a business in a State.

The employees are paid under an award.

Under the award, the employer is required to pay its employees a travel allowance. The award provides that the fares and travel allowance will be a fixed rate per day and will be paid to compensate for travel patterns and costs peculiar to the nature of employment in the employer's industry. It also provides that an additional amount will be paid a State This allowance will be payable for every day upon which an employee works or reports for work in accordance with the employer's requirements but will not be taken into account in calculating overtime, penalty rates, annual leave, sick leave or rostered days off. An employee directed to a work site where there is no reasonable means of transport available on cessation of work will be reimbursed the cost of, or be supplied with, transport by the employer to return to the depot or point where work was commenced.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 6(1)

Superannuation Laws Amendment (2004 Measures No 2) Act 2004.

Reasons for decision

Summary

The fares and travel allowance paid by the employer under the award does form part of OTE under subsection 6(1) of the SGAA.

Detailed reasoning

The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA.

In effect this means employers can no longer use earnings bases specified in industrial awards, superannuation schemes, occupational superannuation arrangements or a law of the Commonwealth, State or Territory to satisfy their requirements in meeting their SGAA liability.

From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.

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

(a) the total of the employee's earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission, but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or

(b) the maximum contribution base for the quarter - the maximum contribution base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. The maximum contribution base for the 2011-12 year of income is $43,820 per quarter. This amount is indexed annually according to the indexation factor.

The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Allowances

SGR 2009/2 addresses allowances at paragraphs 27, 65 and 72.

Paragraph 27 relates to certain specific kinds of payments that are OTE. Paragraph 27 states:

"Many employees receive various additional payments that are described as allowances that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples:

o a site allowance….

o a casual loading….

o a dirt allowance….

o a freezer allowance….

These kinds of payments are OTE except to the extent that they:

are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses…"

Paragraph 65 of SGR 2009/2 relates to certain payments that are 'salary or wages'. Paragraph 65 states:

"For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'…"

Paragraphs 72 and 266 of SGR 2009/2 relates to expense allowances and reimbursements. Paragraph 72 and states:

Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services are not 'salary or wages'.

Paragraph 266 states:

An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE.

Paragraphs 259 to 263 relate to allowances and reimbursements. These paragraphs state:

259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances.

260 In Mutual Acceptance, the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages' as defined the then Commonwealth Pay-Roll Tas Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses to be incurred by those employees.

261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services:

… represents higher wages paid on account of special conditions, and may be fairly described as part of wages in the ordinary sense (emphasis added)

262. Mutual Acceptance was relied upon in Road & Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936.

263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'.

Where an allowance is paid to compensate the employee for costs and unusual conditions of service as one allowance, rather than distinguishing the components of the allowance, it is considered that the allowance forms part wages in the ordinary sense.

The award provides that the fares and travel allowance will be a fixed rate per day and will be paid to compensate for travel patterns and costs peculiar to the nature of employment in the employer's industry. It also provides that an additional amount will be paid in NSW. This allowance will be payable for every day upon which an employee works or reports for work in accordance with the employer's requirements but will not be taken into account in calculating overtime, penalty rates, annual leave, sick leave or rostered days off. An employee directed to a work site where there is no reasonable means of transport available on cessation of work will be reimbursed the cost of, or be supplied with, transport by the employer to return to the depot or point where work was commenced.

A clause of the award indicates that the allowance is paid to compensate the employees for cost and an unusual condition of service in that it is also to compensate for travel patterns.

The award does not distinguish what amount of the travel allowance relates to costs and which amount relates to travel patterns. It is therefore considered that this amount is paid to employees in part to compensate for certain conditions relating to their employment.

Under paragraph 27 of SGR 2009/2, allowances paid to employees to recognise or compensate for certain conditions relating to their employment does form part of OTE.

Conclusion

As the fares and travel allowance payable under the award does form part of OTE under subsection 6(1) of the SGAA the employer is required to pay SG on the allowance.

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