Edited version of your written advice

Authorisation Number: 1012709113999

Advice

Subject: Superannuation Guarantee Obligations

Question 1

Is annual leave allowance as per the Award considered ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer 1

Where the annual leave allowance as per the Award is demonstrably referrable to the loss of overtime it 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 allowance that would have been earned if the worker was not on annual leave then the annual leave allowance as the Award is considered OTE.

Question 2

Is annual leave allowance paid out on termination as per the Award subject to SG?

Answer 2

No. The annual leave allowance paid out on termination is not subject to SG.

Question 3

Are payments of leave accrued in lieu of public holidays when rostered to perform ordinary duty considered OTE? Is this payment paid out on termination also considered OTE?

Answer 3

Yes. The payment of leave in lieu of a public holiday when rostered to perform ordinary duty is considered OTE. However, it is not considered OTE when paid out on termination.

Question 4

Are payments of leave accrued in lieu of public holidays where the worker is not rostered to perform ordinary duty on that day considered OTE? Is this payment paid out on termination also considered OTE?

Answer 4

No. Payments made for leave accrued in lieu of public holidays are not considered OTE, and are also not OTE when paid out on termination

Question 5

Is unused flex (additional hours worked which are not at the direction of the employer) paid out as a lump sum on termination OTE for SG purposes?

Answer 5

No. Unused flex paid out as a lump sum on termination is not OTE

Question 6

Are additional hours worked by a part-time employee considered OTE?

Answer 6

Yes. Additional hours performed by the part-time employee considered OTE

Relevant facts and circumstances

The Commissioner received an application for advice from an employer concerning their superannuation guarantee obligations in relation to its employees. The application provided the following information:

• The employees are a mix of day workers and shift workers. Some are full-time, part-time and casual.

• Employees are engaged under an employment agreement (the award) which provides the following information:

Ordinary Hours of work

Full time day workers are required to work a 76 hour fortnight within the span of hours of 7.00am and 7.00 pm weekdays.

Full time shift workers are required to work a 76 hour fortnight on a regular roster cycle which includes Saturdays, Sundays, Public Holidays and afternoon/night shifts.

Part-time employment may be worked only by agreement between the employee and the employer, where that agreement includes a roster specifying the days, hours and agreed processes for varying these.

Rates of Pay

The award sets out the rates of pay for normal hours worked within the span of 7.00am and 7.00pm weekdays for day workers and also specifies a shift allowance for shift workers when they are required to work on a Saturday, Sunday, Public Holiday or an afternoon/night shift

Overtime rates will only be paid to part-time employees if they are outside the normal span of hours as per the Award, or if the employee works over 38 hours in a week. Additional hours worked over the agreement but less than 38 hours per week will be paid at the ordinary rate.

Substituted Leave for Shift workers

Substituted leave will be paid for shift workers to observe public holidays.

For part-time shift workers, payment for a Public Holiday granted as a day's leave will be made only in respect of those Public Holidays on which the part-time shift workers would have worked had there been no Public Holiday.

A shift worker, regardless of whether or not they were rostered to perform work on the Public Holiday will be granted one day's leave.

Annual Leave Loading

An employee who takes annual leave is entitled to the greater of either:

• 17.5% of the employee's salary; or

• any additional payments which the employee would be entitled for shift, Saturday or Sunday duty which the employee would be required to perform if they were not proceeding on annual leave.

Reasons for Decision

Ordinary time earnings - Overview

All employers need to calculate their superannuation guarantee liability against an employee's OTE as defined in the SGAA.

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 2014-15 year of income is $49,430 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 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state:

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 employees '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.

Detailed Reasoning

Annual Leave Allowance

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 the 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.

The employer employs day workers under the award. The ordinary hours of work for each employee, (except for casual or part-time Employees), averages 76 (exclusive of meal breaks) The span of hours are between 7.00am and 7.00pm Monday to Friday.

Shift workers are also employed whose ordinary hours are 76 per fortnight (exclusive of meal breaks) and whose ordinary pattern or rostered cycle includes Saturdays, Sundays, Public Holiday and afternoon/night shifts.

The award states that annual leave loading will be received 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 17.5% of their salary.

For those workers who are shift workers, the award states they can either receive the 17.5% loading or the loading on the shifts they would have worked had they not taken annual leave (whichever is the greater, but not both).

Therefore it is considered that in this circumstance that the annual leave loading of 17.5% 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. The loading is always included in 'salary or wages'.

SGR 2009/2 expressly excludes lump sums for various leave types from being OTE. Paragraph 69 states that lump sum payments for unused annual leave, long service leave and sick leave, whether paid on termination of employment or otherwise, are 'salary or wages'.

The annual leave loading occurs as a direct result of annual leave, therefore without the annual leave, there would not be any annual leave loading. Upon termination SG is not payable on any unpaid annual leave, and therefore it follows that SG is also not payable on any unpaid annual leave loading.

Leave Accrued In Lieu of Public Holidays

The award states that in relation to shift workers where the nature of the employment does not permit the observance of Public Holidays as they occur; that substituted leave is to be granted. Substitute leave is provided for shift workers who were rostered to perform work on the Public Holiday and also to employees who were not rostered to work.

Paragraph 25 of SGR 2009/2 provides that all amounts of earnings in respect of employment are in respect of an employee's ordinary hours of work unless they are remuneration for overtime hours or other hours that are not ordinary hours of work.

Paragraph 227 of SGR 2009/2 relates to earnings in respect of ordinary hours meaning all earnings other than overtime and addresses the issue of public holidays. Paragraph 227 states:

….. during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of 'ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours.

Therefore, where a shift worker was rostered to perform ordinary duty but is on paid leave instead, the payment they received was in respect of a period which would normally be their ordinary hours, and therefore OTE is attributed to the substituted leave.

In the situation where the employee is rostered off, the payment received by employees in respect of a public holiday which occurs on their rostered day off is not paid in respect of a period which would normally be their ordinary working hours as the payment is made in respect of a public holiday which falls on the employee's rostered day off or a non-working day.

Therefore, this payment is not captured under paragraph 227 of SGR 2009/2. As the payment is made in respect of a period which would not form part of the employees ordinary working hours due to the employee not being rostered to attend work on this day, the payment does not form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer does not have an obligation to make SG payments in respect of the public holiday equitable payment.

Subsection 6(1) of the SGAA specifically excludes the payment of unused leave upon termination of employment. Therefore it doesn't matter that the leave was accrued due to the observance of a Public Holiday, as none of the leave is subject to SG on termination of employment.

Unused Flex Leave

Under subsection 6(1) of the SGAA, the term '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.

SGR 2009/2 explains at paragraph 13 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 the combination of such documents, that governs the employee's conditions of employment. It also states at paragraph 25 that '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'.

In this case the employee's OTE would be his or her earnings in respect of the ordinary hours of work which are, according to the Agreement, up to 76 hours accrued between 7.00am to 7.00pm, Monday to Friday over a two week settlement period. Payments in respect of hours worked outside this span of hours or in excess of the 76 hours would not be OTE.

The Commissioner expresses his view regarding the treatment of unused flex paid out on termination in ATO ID 2010/113:

Lump sum arrears payments of unused leave or salary or wages otherwise than on termination of employment are normally OTE according to paragraph 36 of SGR 2009/2. However, earnings that are referrable to overtime or other hours that are not ordinary hours of work are not OTE, even if the lump sum payments were on termination.

This means that a payment in lieu of flex credit would represent an amount paid for work performed in excess of, or in addition to, an employee's normal working hours for a settlement period, and therefore would not be 'in respect of' ordinary hours of work. Therefore, a payment to employees covered by the terms of this Award in respect of flex credit would not be considered to be OTE as defined in subsection 6(1) of the SGAA.

Additional hours for part-time employees

The Commissioner clarifies in SGR 2009/2 the meaning of 'in respect of ordinary hours of work' to include all earnings other than overtime. It is not enough for an agreement to contain a clause specifying what the ordinary hours are, and for the employee to work outside of the specified hours for the same rate of pay. If this occurs, the Commissioner considers that those earnings paid at the same rate are also considered OTE.

Paragraphs 225 and 226 state:

'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.

The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the 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 that overtime payments, and cognate 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'. (emphasis added)

The additional hours as set out in the award are considered to be classed as ordinary hours due to the nature of their definition. The hours are paid at the ordinary time rate and also count towards service for leave accrual. Therefore the very nature of the additional hours is identical to the nature of those classed as ordinary hours.

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