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Edited version of your written advice
Authorisation Number: 1012691847897
Advice
Subject: Superannuation guarantee - Annual leave loading
Question
Does the entitlement to receive annual leave loading provided for in an Award form part of an employee's ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Advice
It is considered that in the circumstance that the % annual leave loading is paid it is demonstrably referrable to the loss of overtime and is not considered to be part of the OTE of an employee for the purposes of subsection 6(1) of the SGAA. However where the annual leave loading is calculated on the basis of the shift penalty rates then the loading would form part of OTE.
Please see 'Reasons for decision' below.
Relevant facts & 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 employer is seeking advice in respect of in respect of the their superannuation guarantee (SG) obligations in relation to the payment of SG contributions on annual leave loading paid to workers under an Award even if such an Award does not specifically state that it is referable to a notional loss of opportunity to work overtime.
The Award provided the following relevant information:
The ordinary hours of day workers may be worked from 7.00am to 7.00pm Monday to Friday and from 7.00am to 12.30pm on Saturday.
Shift workers are regularly rostered to work on Sundays and public holidays in which shifts are continuously rostered 24 hours a day for seven days a week. Their ordinary hours for a week's work are to be 38, with shifts not exceeding six shifts of ten hours each.
Employees who would normally have worked on day work had they not been on leave would receive the loading or the relevant weekend penalty rates, whichever is the greater but not both
Employees who would have worked shift work had they not been on leave would receive the loading or the shift loading including the relevant weekend penalty rates, whichever is the greater but not both
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 Subsection 6(1)
Reasons for decision
Summary
It is considered that in the circumstance that the % annual leave loading is paid it is demonstrably referrable to the loss of overtime and is not considered to be part of the OTE of an employee for the purposes of subsection 6(1) of the SGAA. However where the annual leave loading is calculated on the basis of the shift penalty rates then the loading would form part of OTE.
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 SG charge.
From 1 July 2008, employers must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum SG contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.
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 loading or commission, but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or
the maximum contribution base for the quarter - the maximum contribution 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. The maximum contribution base for the 2013-14 year of income is $48,040 per quarter. 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' (SGR2009/2).
Annual leave loading and OTE
Annual leave loading was introduced to the awards system in the 1970s on the basis that workers were entitled to loading because when workers were on holidays they received lower than normal pay, as their normal pay included overtime from extra shifts and weekends.
Paragraph 25 of SGR 2009/2 - Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides that, generally, overtime is not ordinary hours of work and therefore not OTE. Therefore, annual leave loading where it is referrable to overtime hours of work is generally not considered part of OTE.
Paragraph 238 of SGR 2009/2 states that:
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.
The purpose of this paragraph is to highlight the fact that the mere act of labelling a payment as "annual leave loading" would not in itself make that payment annual leave loading. The payment must have the fundamental qualities of an annual leave loading payment to be properly characterised as annual leave loading.
Where a payment is identified in an award or industrial agreement as annual leave loading this will generally be sufficient evidence to establish that payment as annual leave loading.
Application of the law in your circumstances
Under the Award an employee will receive an annual leave loading payment on leave accrued.
Further to this the loading for those employees who would have worked on day work only had they not been on leave will receive the annual leave loading or the relevant weekend penalty rates, whichever is the greater but not both.
For those employees who are shift workers the Award states that those employees who would have worked on shift work had they not been on leave - the annual leave loading or the shift loading (including the relevant weekend penalty rates) whichever is the greater but not both.
It is considered that in the circumstance that the % annual leave loading is paid it is demonstrably referrable to the loss of overtime and is not considered to be part of the OTE of an employee for the purposes of subsection 6(1) of the SGAA. However where the annual leave loading is calculated on the basis of the shift penalty rates then the loading would form part of OTE.
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