Edited version of administratively binding advice

Authorisation Number: 1012521550854

Advice

Subject: OTE

Question 1

What are ordinary hours of work for the employees of the company for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

The ordinary hours of work are a maximum of 8 hours per day and 38 hours a week, worked between the hours of 7.00am and 12 midnight, Monday to Sunday. Please refer to 'Reasons for decision'.

The arrangement commences on:

1 July 2013

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.

In a letter to us you have made the following claims:

· All employees of the company are employed on a casual basis.

· These employees are subject to an award (the award).

The award stipulates that ordinary hours for casual employees are between 7.00am and 12.00 midnight Monday to Sunday. The award also stipulates that casual employees will receive overtime payments when they work over 8 hours a day and when they work in excess of 38 hours a week. The award also allows for a penalty payment on Sundays.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1)

Reasons for decision

From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA as follows:

ordinary time earnings, in relation to an employee, means:

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

(ii) earnings consisting of over-award payments, 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.

In broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work. Payments for work performed outside the ordinary hours of work, such as overtime payments, are not OTE.

OTE is usually the amount an employee earns for their ordinary hours of work. It includes commissions, shift-loadings and some allowances, but does not include overtime payments. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides further guidance on what constitutes OTE.

The expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression are not defined in the SGAA. The Commissioner's view on the meaning of these phrases is expressed in the following paragraphs of SGR 2009/2 as follows:

13. An employee's 'ordinary hours of work' are the hours specified as his or her 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.

14. The document need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and 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

15. Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'.

16. If the ordinary hours of work are not specified in a relevant award or agreement, the 'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. This is not necessarily the minimum or maximum number of hours worked or required to be worked.

17. In such cases, it may often not be possible or practicable to determine the normal, regular, usual or customary hours of an employee's work. If so, the actual hours worked should be taken to be the ordinary hours of work.

18. 'Ordinary hours of work' are not necessarily limited to hours to be worked between 9am and 5pm, Monday to Friday. 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.

Paragraph 20 of SGR 2009/2 relates to payments specifically included in the definition of 'ordinary time earnings' in subsection 6(1) and states:

20. Earnings consisting of over-award payments, shift-loadings or commission are specifically included in the definition of OTE by subparagraph (a)(ii) in subsection 6(1).

Paragraphs 220 to 222 of SGR 2009/2 relate specifically to shift loadings and state:

220. The Macquarie Dictionary defines 'shift loading' as:

An allowance paid to employees on shiftwork as compensation for their having to work outside the usual span of hours fixed for day workers.

221. A payment in addition to the ordinary rate of pay made to a shift worker by reason of compensation of working outside the span of hours which is designated for day workers, for example, early morning, late at night, weekends or public holidays, is a shift loading. Such payments are therefore included in the definition of OTE in subsection 6(1).

222. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements. Often these are mutually exclusive under awards and agreements, but if an employee is entitled to a shift-loading in respect of hours other than ordinary hours of work, the Commissioner's view is that the specific inclusion of shift-loading does not apply in that circumstance.

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:

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 referrable only to overtime or other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect of 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 the '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.

Paragraphs 41 of SGR 2009/2 outline that overtime earnings are specifically excluded from OTE:

41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.

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.

Application to the circumstances:

You only engage your employees on a casual basis.

The award stipulates that ordinary hours for casual employees are between 7.00am and 12.00 midnight Monday to Sunday. The award also stipulates that casual employees will receive overtime payments when they work over 8 hours a day and when they work in excess of 38 hours a week. The award also allows for a penalty payment on Sundays.

Therefore ordinary hours of work are a maximum of 8 hours per day and 38 hours a week, worked between the hours of 7.00am and 12 midnight, Monday to Sunday.

The award states that hours worked on a Sunday between 7am and 12 midnight are ordinary hours. The hours worked on Sundays receive a penalty payment. These payments are not considered payments in respect to overtime but rather a shift loading. Paragraph 20 of SGR 2009/2 outlines that shift-loadings are included in OTE. Therefore the OTE for hours worked within the span of ordinary hours on a Sunday is calculated at double time.

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