Edited version of your written advice

Authorisation Number: 1012708190830

Advice

Subject: Superannuation guarantee - Ordinary time earnings and ordinary hours of work

Question

What are the ordinary hours of work for employees for the purpose of calculating ordinary time earnings (OTE) in respect to the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Based on the information provided the ordinary hours of work for employees for the purpose of calculating OTE in respect to the SGAA are made up of the 38 hours an employee would normally work as well as any additional reasonable hours worked in excess of a 38 hour week.

Please see 'Reasons for decision' below.

Relevant facts & circumstances

The relevant Award that applies to the industry does not provide for ordinary hours of work or overtime.

The ordinary hours of work are specified in a State Act

The Award is silent with respect to the ordinary hours of work or overtime and therefore the Act would apply and by that the ordinary hours are 38 hours per week.

There is no actual specification of 'overtime' in any of the industrial instruments which apply to non-national system employers.

There is no penalty rate for the overtime worked.

In practice employers pay the same hourly rate for all hours worked.

The employment status of the employees is a mix of casual, part time and full time employment.

The employees are engaged under the Award.

It is common practice for the employees to regularly work over and above 38 hours per week.

There were no written agreements but there were informal agreements in relation to working 38 hours and any reasonable additional hours as determined by both parties.

Relevant legislative provisions

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

Reasons for decision

Summary

It is considered that the ordinary hours of work for the purpose of calculating OTE in respect to the SGAA are made up of the 38 hours an employee would normally work as well as any additional reasonable hours worked in excess of a 38 hour week.

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.

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

(b) 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 2011/12 year of income is $43,820 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'.

Paragraphs 25 and 26 of SGR 2009/2 specify that earnings 'in respect of ordinary hours of work' mean all earnings other than overtime. 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 remunerated for working overtime hours, or are otherwise referrable 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.

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 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.

Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless they are remuneration for overtime or other hours that are not ordinary hours of work.

Ordinary hours of work

The meaning of 'ordinary hours of work' is discussed in paragraphs 13 to 18 of SGR 2009/2 and is further clarified in paragraphs 189 to 210 of SGR 2009/2.

Paragraph 13 of SGR 2009/2 provides that 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 a combination of such documents, that governs the employee's conditions of employment.

This 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) that the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

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' (paragraph 15 of SGR 2009/2).

However, where 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. Where it is not possible or practicable to determine the normal, regular, usual or customary hours of the employee's work, the actual hours worked should be taken to be the ordinary hours of work (paragraphs 16 and 17 of SGR 2009/2).

Ordinary hours of work are not limited to hours worked between 9.00am and 5.00pm Monday to Friday. Depending on the provision in the award or agreement, if any, they may include hours to be worked at other times, including night, on weekends and on public holidays.

Earnings in respect of ordinary hours of work

For a payment to constitute 'earnings in respect of ordinary hours of work', the payment must be considered 'earnings' of the employee and the earnings must be paid in respect of the employee's 'ordinary hours of work'.

In the context of the SGAA, the term 'earnings' refers to the remuneration paid to an employee as a reward for the employee's services, the practical effect of this being that earnings means 'salary and wages' (paragraph 12 of SGR 2009/2).

Paragraph 25 of SGR 2009/2 explains what is meant by the phrase 'in respect of ordinary hours of work'. 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.

As further explained in paragraph 226 of SGR 2009/2, the Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for earnings to be 'in respect of ordinary hours' and therefore OTE. The Commissioner's view is that the expression 'in respect of ordinary hours of work' was intended to ensure overtime payments and cognate (similar or related) amounts, were excluded from the earnings base.

It was not intended to exclude amounts paid at a worker's ordinary time rate solely on the ground that they were not earned as a direct result of actually working particular hours in ordinary time.

Application of the law to the facts

The Employer employs workers under the Award either on a casual, part time or full time basis.

The Award states that the hours of work shall be by agreement between the employer and the employee.

There is no formal 'agreement' between the employer and the employees but there is an informal agreement in relation to working 38 hours and any reasonable additional hours as determined by both parties.

It is common practice for the employees to regularly work over and above 38 hours per week and that this was more so during the busier times of the year for the industry.

Paragraphs 16 & 17 of SGR 2009/2 state that where 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 of the circumstances of the case. Where it is not possible or practicable to determine the normal, regular, usual or customary hours of the employee's work, the actual hours worked should be taken to be the ordinary hours of work.

There is no reference to overtime in any of the industrial instruments which apply to non-national system employers within this industry. There is also no penalty rate for overtime worked. In practice employers pay the same hourly rate for all hours worked.

Under paragraph 14 of SGR 2009/2, the award or agreement does not need to use the exact expression 'ordinary hours of work', but the award or agreement needs to draw a genuine distinction between ordinary hours and other hours. It would be expected that other hours are remunerated at a higher rate than ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

You have advised that in practice employers within this industry including you pay the same hourly rate for all hours worked.

The additional reasonable hours worked in excess of the 38 hours per week are not expressly referrable or remunerated as overtime hours rather they are referred to as additional reasonable hours in excess of a 38 hour week as per the relevant section of the Act. These hours are not remunerated at a higher rate than the ordinary hours and are not identifiable as a separate component of an employee's total pay in respect of non-ordinary hours.

Under subsection 6(1) of the SGAA 'ordinary time earnings' in relation to an employee means earnings in respect of ordinary hours of work (other than certain lump sum payments made to the employee on termination of employment) and earnings consisting of over-award payments, shift-loading or commission.

Whilst the Act states the maximum hours of work for an employee where there is no industrial instrument that specifies the employee's ordinary hours of work is no more than 38 hours per week and any reasonable additional hours as determined under the relevant section it remains that remuneration for these reasonable additional hours is the same as the normal hourly rate of pay.

These hours are not remunerated at a higher rate than the ordinary hours and are not identifiable as a separate component of an employee's total pay in respect of non-ordinary hours.

Therefore it is considered that the ordinary hours of work for the purpose of calculating OTE in respect to the SGAA are up to the 38 hours an employee would normally work as well as any additional reasonable hours worked in excess of a 38 hour week.

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