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Edited version of administratively binding advice

Authorisation Number: 1012123935815

Advice

Subject: Ordinary time earnings

Question 1

What are the ordinary hours of work of the permanent managers of the employer under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

The ordinary hours of work of the permanent managers of the employer are 42 hours per week.

Question 2

What are the ordinary hours of work of the casual managers of the employer under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 SGAA?

Advice

The ordinary hours of work of the casual managers of the employer are the hours up to and including 38 hours per week.

This advice applies for the following period:

1 July 2011 to 30 June 2012

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 employs managers on a permanent and a casual basis.

The employer engages the managers under Employment Agreements.

The Employment Agreement for a permanent manager states:

Your working hours

Your normal working hours will be an average of 38 hours per week, calculated over a 12 month cycle plus a reasonable number of additional hours.

Four additional hours per week is a reasonable number of additional hours in each week (meaning a total of 42 hours per week) plus any required to fulfil your duties.

You will work in accordance with a roster. You may be rostered to work any day of the week, including weekend and evening work.

Your pay:

You will be paid a salary ("Salary") based on an Annual Salary rate.

Your Salary will be paid in equal weekly instalments directly into your nominated Australian bank, building society or credit union account.

Your Salary will be reviewed every 12 months, however nothing in this Agreement obliges us to increase your salary following the review.

Your salary represents the total remuneration to which you are entitled and is inclusive of all allowances, overtime and any other payment due to you under any applicable industrial instrument.

You may also be entitled to a discretionary bonus payment upon successful completion of targets as we set from time to time.

Payment for Additional Hours (beyond 42 hours)

If you work beyond 42 hours in a particular week you will, at the Company's discretion, be either:

Paid at your normal hourly rate for each Additional Hour you work in excess of 42 hours in that same week; or

Be granted the same amount of Additional Hours as paid time off in lieu (but paid at the ordinary hourly equivalent of your Salary)

These Additional Hours will be calculated at the end of each pay period for that month, and payment of Additional Hours or granting of time off in lieu of Additional Hours will be determined by the Company. There is no overtime loading provided by this agreement.

Your salary and the payment for Additional Hours or the granting of time off in lieu of the Additional Hours is all the remuneration to which you are entitled (and is inclusive of any entitlement to any payment under any applicable industrial instrument) for all hours of work and may be set off against any financial obligation we have to you.

Superannuation

We will make superannuation payments on your behalf to a Complying Superannuation Fund.

The amount of the superannuation payment will be the percentage of your normal time earnings set out in section 19(2) of the Superannuation Guarantee (Administration) Act 1992.

The Employment Agreement for a permanent manager provides a Definitions and Explanatory Notes section which provides the following definition of normal time earnings

"normal time earnings", to which clause 8 refers, means your earnings for 38 hours of work. Earnings from additional hours are not normal time earnings.

The Employment Agreement for a casual manager states:

Your working hours

Your normal working hours will be an average of 38 hours per week, calculated over a 12 month cycle plus a reasonable number of additional hours.

Four additional hours per week is a reasonable number of additional hours in each week plus any required to fulfil your duties.

You will work in accordance with a roster. You may be rostered to work any day of the week, including weekend and evening work.

Your Pay:

You will be engaged on an hourly contract of service and you shall not be engaged for less than two consecutive hours per time which will normally be worked between Monday to Sunday (Ordinary Hours). Details of your initial roster will be discussed with you upon commencement.

You should note that the Ordinary Hours include evening, weekend and public holiday work, and that you may be rostered to work during these times either now or in the future.

Your hours of work will be displayed on a roster within the restaurant and may be altered by company with one week's notice

You will be paid at an initial rate whilst training and then a standard rate once fully trained.

Your wage will be paid in weekly instalments directly into your nominated Australian bank, building society or credit union account.

Your wage will be reviewed every 12 months, however nothing in this Agreement obliges us to increase your wage following the review

Your wage represents the total remuneration to which you are entitled and is inclusive of all allowances, overtime and any other payment due to you under any applicable industrial instrument. All meetings that you are required to attend will be paid at normal hourly rate.

You may also be entitled to a discretionary bonus payment upon successful completion of targets as we set from time to time.

Payment for Additional Hours (beyond 38 hours)

If you work beyond 38 hours in a particular week you will, at the Company's discretion, be either:

Paid at your normal hourly rate for each Additional Hour you work in excess of 38 hours in that same week; or

Be granted the same amount of Additional Hours as paid time off in lieu (but paid at the ordinary hourly equivalent of your Wage rate)

These Additional Hours will be calculated at the end of each pay period for that month, and payment of Additional Hours or granting time off in lieu of Additional Hours will be determined by the Company. There is no overtime loading provided by this agreement.

Your wage rate and the payment for Additional Hours of the granting of time off in lieu of the Additional Hours is all the remuneration to which you are entitled (and is inclusive of any entitlement to any payment under any applicable industrial instrument) for all hours of work and may be set off against any financial obligation we have to you.

Superannuation

We will make superannuation payments on your behalf to a Complying Superannuation Fund.

The amount of the superannuation payment will be the percentage of your normal time earnings set out in section 19(2) of the Superannuation Guarantee (Administration) Act 1992.

The Employment Agreement for a casual manager provides a Definitions and Explanatory Notes section which provides the following definition of normal time earnings

Relevant legislative provisions

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

Superannuation Guarantee Administration Act 1992 Subsection 6(1).

Reasons for decision

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:

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

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'.

Paragraphs 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state:

The Commissioner's view in relation to earnings 'in respect of ordinary hours of work' is addressed at paragraphs 25 and 26 of SGR 2009/2. The Commissioners view is that all earnings other than overtime are the employee's earnings in respect of their ordinary hours of work. Paragraphs 25 and 26 state:

Situations in which ordinary hours of work are specified in an award or agreement are addressed in SGR 2009/2 at paragraphs 189 to 202. Paragraph 189 of SGR 2009/2 relates to hours worked in excess of the ordinary hours of work and states:

It is common for awards and agreements that govern the terms and conditions of a worker's employment to make provision for the ordinary hours of work of the worker. Normally, hours worked in excess of the ordinary hours of work attract penalty rates of pay and are described as 'overtime'. In general, a clear distinction is understood to apply for various purposes between ordinary time earnings and overtime earnings.

Paragraph 202 of SGR 2009/2 relates to an employee's earnings in respect of ordinary hours of work and states:

An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the 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 'ordinary time earnings' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that the ordinary hours or 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.

In this case, the employer employs managers on both a permanent and casual basis. The managers are employed under an Employment Agreement. There are separate Employment Agreements for the permanent managers and the casual managers.

Question 1

Summary

The ordinary hours of work for the permanent managers of the employer are their normal working hours plus reasonable additional hours defined in the Employment Agreement.

Detailed reasoning

Under the Employment Agreement for permanent managers, the managers are paid an annual salary under a paragraph of the Employment Agreement. In relation to the total remuneration, the paragraph states:

Your salary represents the total remuneration to which you are entitled and is inclusive of all allowances, overtime and any other payment due to you under any applicable industrial instrument.

In relation to a permanent managers ordinary hours of work, a paragraph of the Employment Agreement states:

Your working hours:

Your normal working hours will be an average of 38 hours per week, calculated over a 12 month cycle plus a reasonable number of additional hours.

Four additional hours per week is a reasonable number of additional hours in each week (meaning a total of 42 hours per week) plus any required to fulfil your duties.

The Employment Agreements for permanent managers defines normal time earnings as:

Under a paragraph of the permanent managers Employment Agreement, the payment for Additional Hours, (beyond 42 hours) is addressed. Paragraph 7 states:

Payment for Additional Hours (beyond 42 hours)

If you work beyond 42 hours in a particular week you will, at the Company's discretion, be either:

Paid at your normal hourly rate for each Additional Hour you work in excess of 42 hours in that same week; or

Be granted the same amount of Additional Hours as paid time off in lieu (but paid at the ordinary hourly equivalent of your Salary)

These Additional Hours will be calculated at the end of each pay period for that month, and payment of Additional Hours or granting of time off in lieu of Additional Hours will be determined by the Company. There is no overtime loading provided by this agreement.

Your salary and the payment for Additional Hours or the granting of time off in lieu of the Additional Hours is all the remuneration to which you are entitled (and is inclusive of any entitlement to any payment under any applicable industrial instrument) for all hours of work and may be set off against any financial obligation we have to you.

Under paragraph 14 of SGR 2009/2, an employment agreement does not need to use the exact expression 'ordinary hours of work' but it does need to draw a genuine distinction between ordinary hours and other hours. It would be expected that the other hours are remunerated at a higher rate than ordinary hours, would be typically described as overtime or be identifiable as a separate component of the total pay in respect of non-ordinary hours.

A paragraph of the Employment Agreement for permanent managers provides that the manager's ordinary hours of work are 38 hours per week, plus a reasonable number of additional hours, which is defined in the Employment Agreement as an additional four hours. They managers are also required to work any further hours to fulfil their duties.

The Commissioner's view in relation to earnings 'in respect of ordinary hours of work' is addressed at paragraphs 25 and 26 of SGR 2009/2.

The Commissioners view is that all earnings are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are otherwise referrable to overtime or to other hours that are not ordinary hours of work.

Under a paragraph of the Employment Agreement, the managers are paid a salary for their normal hours of work and the reasonable additional hours, which is a total of 42 hours per week. If they work beyond 42 hours, they will be paid at their normal hourly rate for each additional hour or be granted the same amount of additional hours as paid time in lieu.

Under a paragraph of the Employment Agreement, the permanent manager's salaries include allowances, overtime and any other payment due. Therefore, there is a genuine distinction between their ordinary hours and the further hours required to fulfil their duties.

Under the employer's Employment Agreement for permanent managers, the ordinary hours of work are 42 hours per week.

Question 2

Summary

The ordinary hours of work for the casual managers of the employer are the hours up to and including the normal working hours defined in the Employment Agreement.

Detailed reasoning

Under the Employment Agreement for casual managers, the managers are paid on an hourly contract of service under a paragraph of the Employment Agreement. In relation to total remuneration the paragraph states:

Your wage represents the total remuneration to which you are entitled and is inclusive of all allowances, overtime and any other payment due to you under any applicable industrial instrument. All meetings that you are required to attend will be paid at normal hourly rate.

In relation to a casual manager's ordinary hours of work, a paragraph of the Employment Agreement states:

Your normal working hours will be an average of 38 hours per week, calculated over a 12 month cycle plus a reasonable number of additional hours.

Four additional hours per week is a reasonable number of additional hours in each week plus any required to fulfil your duties.

The Employment Agreements for casual managers defines normal time earnings as:

Under a paragraph of the casual managers Employment Agreement, the payment for Additional Hours, (beyond 42 hours) is addressed. The paragraph states:

Payment for Additional Hours (beyond 38 hours)

If you work beyond 38 hours in a particular week you will, at the Company's discretion, be either:

Paid at your normal hourly rate for each Additional Hour you work in excess of 38 hours in that same week; or

Be granted the same amount of Additional Hours as paid time off in lieu (but paid at the ordinary hourly equivalent of your Wage rate)

These Additional Hours will be calculated at the end of each pay period for that month, and payment of Additional Hours or granting time off in lieu of Additional Hours will be determined by the Company. There is no overtime loading provided by this agreement.

Your wage rate and the payment for Additional Hours of the granting of time off in lieu of the Additional Hours is all the remuneration to which you are entitled (and is inclusive of any entitlement to any payment under any applicable industrial instrument) for all hours of work and may be set off against any financial obligation we have to you.

Under paragraph 14 of SGR 2009/2, an employment agreement does not need to use the exact expression 'ordinary hours of work' but it does need to draw a genuine distinction between ordinary hours and other hours. It would be expected that the other hours are remunerated at a higher rate than ordinary hours, would be typically described as overtime or be identifiable as a separate component of the total pay in respect of non-ordinary hours.

A paragraph of the Employment Agreement for casual managers provides that the manager's ordinary hours of work are 38 hours per week, plus a reasonable number of additional hours, which is defined in the Employment Agreement as four hours. The managers are also required to work any further hours to fulfil their duties.

The Commissioner's view in relation to earnings 'in respect of ordinary hours of work' is addressed at paragraphs 25 and 26 of SGR 2009/2.

The Commissioners view is that all earnings are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are otherwise referrable to overtime or to other hours that are not ordinary hours of work.

The Commissioner's view in relation to earnings 'in respect of ordinary hours of work' is addressed at paragraphs 25 and 26 of SGR 2009/2.

The Commissioners view is that all earnings are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are otherwise referrable to overtime or to other hours that are not ordinary hours of work.

Under a paragraph of the Employment Agreement for casual managers, the manager's are paid an hourly rate. If the manager works beyond 38 hours in a particular week, they will be paid at their normal hourly rate for each Additional Hour or be granted the same amount of paid time off in lieu.

Under a paragraph of the Employment Agreement, the casual manager's hourly rate includes allowances, overtime and any other payment due. Therefore, there is a genuine distinction between their ordinary hours and the further hours required to fulfil their duties.

Under the employer's Employment Agreement for casual managers, the ordinary hours of work are those hours up to and including 38 hours per week.

Conclusion

The ordinary hours of work for the permanent managers of the employer are their normal working hours plus reasonable additional hours defined in the Employment Agreement, which is a total of 42 hours per week.

The ordinary hours of work for the casual managers of the employer are the hours up to and including the normal working hours defined in the Employment Agreement, which is those hours up to and including 38 hours per week.

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