| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of administratively binding advice
Authorisation Number: 1012423497330
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.
Subject: Administrative Binding Advice - Superannuation Guarantee
Question
Does the pro-rata annual leave entitlement payment that is paid to casual employees form part of the ordinary time earnings (OTE) for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Answer: Yes, please see 'Explanation' below.
Relevant facts
You applied for administratively binding advice regarding whether the pro-rata annual leave entitlement paid to casual employee's forms part of the OTE for the purposes of the SGAA.
You have supplied a copy of the Agreement.
The agreement contains clauses that specify the minimum and maximum ordinary hours per day for a casual employee and minimum continuous hours where there are separate engagements in a day. There is also a clause that specifies that casual employees will receive a specified portion of the Monday to Friday casual hourly rate for each ordinary hour worked (Monday - Sunday) as a pro-rata annual leave entitlement
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 subsection 6(1)
Explanation
Summary
Casual employees are usually not entitled to paid leave or paid public holidays. Instead they receive a higher rate of pay which is referable to their ordinary hours of work and therefore OTE, unless paid in respect of overtime hours worked.
In your case, casual employees receive a specified portion of the Monday to Friday casual hourly rate for each ordinary hour worked as a pro-rata annual leave entitlement. Because this payment is made only in relation to ordinary hours worked, and not overtime hours, it is OTE for the purposes of subsection 6(1) of the SGAA.
Detailed reasoning
The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge. 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 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 loadings or commissions, but does not include lump sum payments made on the termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or
(b) the maximum contributions base for the quarter - the maximum contributions 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. 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' (SGR 2009/2).
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'. In particular, the ruling states that:
25 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 these are remuneration for overtime or other hours that are not ordinary hours of work.
Allowances and loadings
Paragraph 27 of SGR 2009/2 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:
· a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;
· a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;
· a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and
· a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities.
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; or
· relate solely to hours of work other than ordinary hours of work.
Appendix 2 to SGR 2009/2 is provided as information to help taxpayers to understand how the Commissioners view has been reached. Paragraph 237 of SGR 2009/2 is in the explanation and relates to casual employees receiving a higher rate of pay because they are usually not entitled to paid leave or paid public holidays. This paragraph states:
Casual employees, including part-time casuals, are usually not entitled to paid leave or paid public holidays. Instead they receive a higher rate of pay (a 'casual loading') which is referable to their ordinary hours of work and therefore OTE, unless paid in respect of overtime hours worked.
Application to your circumstances
In your case, casual employees receive an additional payment on their casual hourly rate for each ordinary hour worked as a pro-rata annual leave entitlement because the annual leave provisions of the Agreement do not apply to casuals.
The relevant clause of the Agreement clearly specifies that this payment is made for each ordinary hour worked and does not provide for this payment to be made when the casual employee works overtime. Therefore, the payment is in relation to the ordinary hours of work and not overtime or other hours.
As the payment relates solely to the ordinary hours of work of the casual employee it forms part of OTE for the purposes of subsection 6(1) of the SGAA. This is supported by paragraphs 27 and 237 of SGR 2009/2 in which it is outlined that additional payments made to casual employees to compensate for the conditions of their service, such as no entitlement to paid annual or public holiday leave, are OTE unless they are directly referable to overtime hours.
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).
