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Edited version of administratively binding advice
Authorisation Number: 1012571098905
Advice
Question 1
Are all earnings earned during the employees' normal rostered hours OTE?
Advice
Yes. All earnings from those hours for which the employee are ordinarily rostered on to work are OTE. Please see 'Explanation' below.
Question 2
Is superannuation payable on the penalty rate applicable for work on public holidays?
Advice
Yes. Where an employee works on a public holiday as a part of the employee's normal roster it forms part of OTE. Please see 'Explanation' below.
Question 3
Does the annual leave loading form part of the employees' OTE for the purposes of subsection 6(1) of the SGAA?
Advice
No. Please see 'Explanation' below.
The arrangement commences on:
After 1 July 2013
Relevant facts and circumstances
You provided the following information in the application:
· You employ an employee under an award (the Award)
· Ordinary hours of work are defined in the award.
· The award provides for an annual leave loading.
· The award allows for alterations to the award and you have entered into such an agreement (the Agreement).
· You informed us of the rostered hours of work and the type of worker you employ.
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.
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.
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 22 and 221 explain that shift-loadings are specifically included in OTE including public holiday shift-loadings:
220. A shift-loading is an amount paid to a worker in addition to his or her basic hourly rate for having to work outside the usual span of time for day workers. 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-loadings does not apply in that circumstance.
221. A payment in addition to the ordinary rate of pay made to a shift worker by reason of compensation for 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).
Paragraph 238 explains that annual leave loadings are not OTE when they are referrable to a notional loss of opportunity to work overtime. It states:
238. By way of exception an annual leave loading that is payable under some awards and industrial agreements is not OTE if it is demonstrably referable to a notional loss of opportunity to work overtime. However, the loading is always included in 'salary or wages'.
Paragraph 26 of SGR 2009/2 outlines that OTE itself cannot always be determined by the relevant award or agreement. Paragraph 26 of SGR 2009/2 states:
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.
Paragraphs 41 of SGR 2009/2 outline that overtime earnings are specifically excluded in the definition of OTE:
41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.
Application to your circumstances
Question 1
In your case you engage employees under an award which specifies what your employees' ordinary hours of work are.
However, paragraph 26 of SGR 2009/2 explains that an award does not necessarily define OTE itself. Rather, OTE is established by what amounts are 'earnings in respect of ordinary hours of work'. You have entered into the Agreement which alters the conditions under the award. Under the Agreement ordinary rostered hours is increased. As per paragraph 16 of SGR 2009/2 these hours are the normal, regular, usual or customary hours worked by the employee as established by the combination of the award and the agreement. Therefore earnings from these hours are OTE.
Question 2
As per paragraph 220 of SGR 2009/2 all shift-loadings paid in regards to work done within the ordinary hours of an employee is specifically included in the definition of OTE. Therefore where an employee is rostered on to work on a public holiday as a part of that employee's ordinary work roster then all payments, including the shift-loading, will be OTE.
Question 3
Paragraph 238 of SGR 2009/2 explains that annual leave loadings are not OTE when they are referrable to a notional loss of opportunity to work overtime.
In your case the loading does not form part of OTE for the purposes of subsection 6(1) of the SGAA because it is able to be referred to a notional loss of opportunity to work additional hours.
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