Edited version of administratively binding advice

Authorisation Number: 1012475391663

Advice

Subject: Superannuation Guarantee - Ordinary Time Earnings and Workers Compensation

Question

Does the employer have an obligation under the Superannuation Guarantee (Administration) Act 1992 (SGAA) for an employee in receipt of workers compensation where the employee is on a return to work program with a host employer?

Advice

Yes. Please see 'Explanation' below.

This advice applies for the following period:

1 July 2012 - 30 June 2014

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 worker sustained a work related injury and lodged a workers compensation claim in the respective state.

· The claim remains open and the worker continues to be on workers compensation.

· The employee is employed by the employer.

· The employer pays the worker's wages and is subsequently reimbursed by the insurance company.

· The insurance company have appointed an external rehabilitation provider to perform the worker's rehabilitation back to the workplace.

· The rehabilitation provider arranged for the worker to commence a return to work (RTW) plan on reduced hours, days and restricted duties according to medical certificates with an external employer/host sourced by the rehabilitation provider.

· Whilst the employee is on the RTW plan the employer continues to be his employer and pay wages this is then reimbursed back to the employer by the insurance company.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 6

Superannuation Guarantee (Administration) Act 1992 Section 11.

Reasons for decision

Summary

The entity does have an obligation under the SGAA where the employee is on a return to work program for the time the employee attends work or is required at a workplace.

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 amount of the superannuation contributions paid to a complying superannuation fund or retirement savings account (RSA) is based on a percentage of the employee's ordinary time earnings (OTE).

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

(a)  the total of:

(i)  earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) a unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and

(C) (Repealed by No 15 of 2007)

(ii) earnings consisting of over-award payment, shift loading or commission; or

(b)  if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services.

The term 'in respect of' means to have some connection with. For the definition of OTE, a payment will be taken to be earnings in respect of ordinary hours of work if it is made:

· for attendance, or for work done, in those hours; or

· to satisfy an entitlement that accrued as a result of attending, or working, in those hours.

The Commissioners views on OTE generally, including workers compensation and including top up payments, where the employee does not perform 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 amount can only be part of an employee's OTE if it is 'salary or wages' of the employee. However, the ruling also explains that 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.

Workers' compensation and OTE

Paragraph 39 of SGR 2009/2 explains the Commissioners view on whether workers' compensation forms part of an employees OTE. Paragraph 39 states:

Workers' compensation payments made by an employer or on behalf of an employer (for example, by an insurance company) are part of an employee's OTE only if they are 'salary or wages' paid in respect of ordinary hours of work. Any such payments are part of 'salary or wages' only if the employee actually performs work or is required to attend work.

Paragraph 68 of SGR 2009/2 expands on this stating:

Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work as required form part of 'salary or wages'. In contrast, if the employment has been terminated, or if the employee is paid workers' compensation for hours not worked (or not attending work as required); the payment would not be 'salary or wages' as in these situations it cannot be said that the payment is a reward for the services of the employee to the employer.

This view is reiterated in paragraph 76 of SGR 2009/2 where it states that workers compensation payments made by or on behalf of an employer to an employee not required to work through incapacity or whose employment has been terminated are not salary and wages.

Further paragraphs 271 to 273 of SGR 2009/2 cover workers' compensation in detail. Paragraph 271 covers instances where the employee performs work or is required to work and states:

Workers' compensation payments, including top-up payments, received by an injured employee where the employee performs work or is required to attend work is considered salary or wages. This is despite the fact the workers' compensation may be paid by another party such as an insurance company rather than the employer.

Paragraph 272 goes on to state:

Under subsection 6(3) of the SGAA, payments of salary or wages to an employee can be made by another party on behalf of the employer. The payment is also considered 'salary or wages' if an employee is directed by the employer to perform services for another party, or is only required to attend a workplace.

Paragraph 273 of SGR 2009/2 covers situations where the employee in receipt of workers' compensation payments is not required to attend work or perform work duties.

However, workers' compensation payments, including top-up payments received by an injured employee who does not work or is not required to attend work due to incapacity to work, are not considered 'salary or wages'. In these cases the payments are to be categorised as compensation for loss of work rather than 'salary or wages'.

Given that payments for workers' compensation where there is no requirement for work or attendance of work are deemed to be compensation for the loss of work and not salary or wages these payments do not form part of OTE.

For example, if an employer has an employee who is absent from work and receiving worker's compensation with or without top-up payments since 1 July 2008 under OTE there would be no liability under the SGAA for these payments. Example 18 covered in paragraphs 147 to 153 of SGR 2009/2 provides a simple example of the way workers' compensation payments are handled both where an employee is able to continue to work and is not able to attend work.

Despite there not being a liability under the SGAA there still may be a common law requirement under an employee award, contract or enterprise agreement to contribute to an employees' superannuation fund where an employee receives workers compensation and is not required to attend work or perform work duties. This requirement however does not create a liability under the SGAA and is not controlled by the tax office.

Likewise the fact that the SGAA does not require an employer to contribute to an employee's superannuation fund when they are in receipt of workers compensation and are unable to attend work or perform work duties does not prevent an employer from contributing to the employees' superannuation fund. These contributions however will not be taken into consideration in future periods where an employer may have an SGC shortfall.

Return to work programs

Where an employer has an employee who is on a return to work program and is required to work only part of the day or part of the week, it is the Commissioner's view that a combination of paragraphs 39 and 273 determines the amount of liability under the SGAA. The liability would only be calculated upon the payment made to the employee where they were actually required to attend a workplace on their return to work program. This is irrespective of whether it is the employer's workplace or that of the host employer provided by the rehabilitation provider as in this case.

The amount paid to the employee where they are not required to attend work would not be viewed as salary and wages as it is the Commissioner's view as stated above and in paragraph 273 of SGR 2009/2 is compensation for loss of work and therefore not ordinary time earnings.

Application to your circumstances

The employee is employed by the entity that pays the employee's wages which in turn is reimbursed by the entity's insurance company.

The insurance company appointed an external rehabilitation provider to perform the employee's rehabilitation back into the workplace. The rehabilitation provider arranged for the employee to commence a return to work program on reduced hours, days and restricted duties according to medical certificates with an external host employer that was sourced by the rehabilitation provider.

Whilst the employee was on the return to work program the entity continued to be the employer and pay the employee's wages from their payroll which in turn was subsequently reimbursed by the insurance company.

SGR 2009/2 provides that workers' compensation paid to employees while they are not working or attending work does not form part of the calculation of OTE as defined by subsection 6(1) of the SGAA. Also, it does not fit the definition of salary and wages according to subsection 6(3) of the SGAA. It is the Commissioner's view that such payments are a compensation for a loss of work.

However any payments paid to employees while they are attending work including participation in a return to work program does form part of the calculation of OTE as defined in subsection 6(1) of the SGAA. Section 11 of the SGAA provides the definition of salary or wages, payment made to an employee whilst they are attending the workplace does fit the definition of salary and wages under subsection 6(3) of the SGAA.

Therefore where an employee is on a return to work program only those payments made to the employee in respect to their actual attendance to the workplace form part of the calculation of OTE.

In this case the entity does have an obligation under the SGAA to provide superannuation contributions on behalf of the employee whilst working in a return to work program irrespective of if it is in your workplace or a host employer's place of business.

The payments made while the employee is absent from the workplace does not form part of OTE.

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