Edited version of your written advice

Authorisation Number: 1012758567832

Advice

Subject: Ordinary time earnings

Question 1

Is the allowance described as paid for hours falling outside of employees' ordinary hours in your award (the Award) considered ordinary time earnings (OTE) for the purposes of section 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No, please see the 'Reasons for decision'.

Question 2

Are the overtime payments described in the Award OTE?

Advice

No, please see the 'Reasons for decision'.

Question 3

Are the shift loadings described in the Award OTE?

Advice

Yes, please see the 'Reasons for decision'.

The arrangement commences on:

1 July 2014

Relevant facts and circumstances

We received an application for advice from you in regards to ordinary time earnings.

You employ workers under the Award.

The Award defines ordinary hours of work.

The Award describes an allowance which is paid in respective of hours falling outside the employees' ordinary hours.

The Award describes a loading which is paid in respect of ordinary hours.

The Award describes overtime hours as falling outside employees' ordinary hours. Overtime is remunerated at a higher rate.

The Award describes shift allowances as being paid in respect of ordinary hours.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 (SGAA) section 6(1)

ATO View documents

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'

Reasons for decision

The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA. 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:

• 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

• 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. Shift-loadings are specifically included within the definition of OTE. 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.

The Commissioner's views on OTE are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. (SGR 2009/2).

Paragraph 12 of SGR 2009/2 provides the meaning of 'earnings' and states:

An employee's 'earnings' for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

Paragraphs 13 to 18 of SGR 2009/2 outline the meaning of 'ordinary hours of work'. It states:

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.

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.

Allowances

An allowance is a payment of a definite predetermined amount to cover an estimated expense. Generally it is paid regardless of whether the employee incurs the expected expense and the employee has the discretion whether or not to expend the allowance. Paragraph 27 of SGR 2009/2 relates to certain specific kinds of payments that are OTE and states:

Many employees receive various additional payments that are described as allowances that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples:

• a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;

• a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;

• a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

• a 'freezer allowance' paid at the rate of an extra $X per hour to employees, such as some employees, who perform most of their duties in cold storage facilities.

These kinds of payments are OTE except to the extent that they:

• are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses; or

• relate solely to hours of work other than ordinary hours of work.

Furthermore paragraph 44 of SGR 2009/2 explains that an on-call allowance is separate from salary paid to an employee who is actually at work and is therefore not OTE. However, paragraph 45 explains that where an on-call allowance is paid during ordinary hours of work, this is considered OTE.

44. An on-call or availability allowance is a payment to an employee for making himself or herself available at certain times to be called in to work if needed. This entitlement is separate from the salary or wages he or she will receive if actually called in. If paid in respect of hours that the employee is not otherwise working, these payments are not OTE.

45. In some cases on-call allowances are paid as a loading on the salary of an employee received for ordinary hours of work. For example, some doctors employed by hospitals are paid an extra hourly allowance, while carrying out routine duties in ordinary hours of work, to make themselves available to perform urgent surgery if required. Payments of that kind are OTE (except of course to the extent that they are paid in respect of overtime hours).

Shift-loadings

Paragraph 22 explains that, whether a shift-loading is considered OTE, depends on whether it is paid in respect of ordinary hours of work or overtime work.

22. 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.

Paragraphs 220 to 222, which is in the explanation section of the ruling, explain that shift-loadings are OTE where they are paid in respect of ordinary hours:

220. The Macquarie Dictionary defines 'shift loading' as:

An allowance paid to employees on shiftwork as compensation for their having to work outside the usual span of hours fixed for day workers.

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).

222. 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.

Question 1

The Award describes an allowance which is paid in respective of hours falling outside the employees' ordinary hours.

Paragraph 27 of SGR 2009/2 provides that additional payments made to employees to recognise or compensate employees for certain conditions relating to their employment are OTE except to the extent that they relate solely to hours of work other than ordinary hours of work.

As the allowance paid to employees in the Award relates to hours that are outside of ordinary hours of work, this allowance does not form part of OTE for the purposes of subsection 6(1) of the SGAA and the employer does not have an obligation to make SG payments in respect of this payment.

Question 2

The Award describes overtime as falling outside of ordinary hours.

As per paragraph 14 of SGR 2009/2, the Award draws a genuine distinction between ordinary hours and overtime. These hours are renumerated at a higher rate and separable from the ordinary hours of the workers. Therefore, as overtime payments in the Award are wholly referable to overtime they are not OTE.

Question 3

Shift allowances are described in the Award as falling within ordinary hours.

As per paragraph 222 of SGR 2009/1, there is a distinction between overtime and shift loadings paid under the Award. The shift loadings are only ever paid in respect of the employee's ordinary hours and therefore they are OTE.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).