Edited version of administratively binding advice

Authorisation Number: 1012618222430

Advice

Subject: Superannuation Guarantee - ordinary time earnings

Question

Do payments made to employees upon the cancellation of an event form part of ordinary time earnings (OTE) by virtue of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Yes. Refer to 'Reasons for decision'

The arrangement commences on:

1 July 2013

Relevant facts and circumstances

You engage employees for certain events.

The contract you have with the employees state that you pay the employees, under certain circumstances, even when the event does not go ahead.

The contract does not stipulate that payment for the event is for overtime.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 6(1)

Superannuation Guarantee Administration Act 1992 subsection 11(1)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Reasons for decision

Summary

The payment paid to employees upon the cancellation of an event is 'salary or wages' and is also OTE.

Detailed reasoning

The SGAA states that an employer must provide the required minimum level of superannuation support for its employees (unless the employees are exempt employees) or pay the Superannuation Guarantee Charge (SGC).

Extended Definition of Employee under Subsection 12 (8) of the SGAA

Subsection 11(1) of the SGAA provides an inclusive definition of the term 'salary or wages'. Under paragraph 11(1)(d) payments to a person for work referred to in subsection 12(8) are specifically included in salary or wages.

Paragraph 12(8)(a) of the SGAA states

a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.

Paragraph 12(8)(b) of the SGAA states

a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment.

Superannuation Guarantee Ruling SGR 2009/1Superannuation guarantee: payments made to sportspersons (SGR 2009/1) provide guidance on when sportspersons are considered employees.

Paragraph 12 of SGR 2009/1 explains when services are made in connection with a sporting activity:

12. In the context in which the term appears, services are provided 'in connection with' a sporting activity if the services are directly referrable to the sporting activity such that the services can be said to be 'bound up' or 'involved in' that activity. The provision will also cover persons providing services required so that the sporting activity can be played. Such services may be provided before, during or after the sporting activity. Hence, paragraph 12(8)(b) will include persons such as umpires, referees and other sporting officials and technicians who are not already under a common law employment relationship with the relevant payer. The terms of paragraph 12(8)(b) will not be satisfied where services are provided at the same time as the sporting event but are provided for some other purpose, such as for example, advertising. In such circumstances, the direct causal link required by paragraph 12(8)(b) will not exist.

Paragraph 23 provides an example of where a worker would be an employee when attending matches or, if not attending, receiving payments in connection with a match:

27. The three year playing contract that Kyle enters into with the club is a common law employment contract. This is because Kyle must perform the activities of training and playing in matches and cannot delegate to another person to fulfil those obligations. Further, Kyle is required to submit to the direction of the team coach. Therefore, Kyle is an employee under subsection 12(1). Superannuation contributions should be made for Kyle by the club to avoid SGC being applicable to the playing fee and the match fees.

28. If there is any doubt that Kyle is in a common law employment relationship with the club, paragraph 12(8)(a) would apply to the match payments he received as they are paid for his participation in the sporting activity. The playing fee of $50,000 and the fee paid for the match for which Kyle was selected but did not take the field, if not already subject to paragraph 12(8)(a), would be subject to paragraph 12(8)(b). These payments are made to Kyle for services he has provided in connection with an activity referred to in paragraph 12(8)(a). Those services are 'bound up' and 'involved with' his participation in the national football competition.

Ordinary time earnings

From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee (SG) 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.

Paragraph 26 of the ruling explains that there are no payments for employment generally which is not OTE unless it is referrable to overtime:

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 of employment generally and are not OTE because they are not in respect of any particular hours of work.

Application to your circumstances

In your case you pay employees for an event even when the event is cancelled. Similar to the example in paragraph 23 and 24 of SGR 2009/1, though the payment is not made for the event itself, the payment is still in connection with the event. It is a payment made in connection with an activity referred to in paragraph 12(8)(a) and therefore the payment is a part of 'salary or wages' as per subsection 11(1)(d.

As per paragraph 26 of SGR 2009/2 the payment is not referable to overtime hours and is therefore OTE and SG is payable on the amount.

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