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Edited version of your written advice
Authorisation Number: 1012793817375
Advice
Subject: Ordinary time earnings and Superannuation Guarantee (Administration) Act 1992
Question 1
Is the total salary paid to a director (comprising of the chair and non-executive director fees) where the payment is part cash, part shares considered ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Advice
Yes
Relevant facts and circumstances
• The Principal provided a copy of a letter which outlined the terms of appointment for a non-executive director and chair of the business.
• The terms of appointment do not stipulate any particular hours of work. Instead a base fee per annum is specified in addition to another payment per annum for holding the position of Chair of the Board.
• Also in the terms of appointment it states: 'Where applicable your superannuation contribution will be paid to a superannuation scheme of your choice in accordance with statutory requirements.
Reasons for decision
Summary
Director's fees (including the Chair and Non-executive fees) are included in OTE for the purposes of calculating the superannuation guarantee. The total earnings, whether paid as cash or in-specie are included in OTE.
Detailed reasoning
Ordinary time earnings
All employers need to calculate their SG 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 16-18 of the Ruling outlines what ordinary hours of work are when they are not specified in an award or an agreement, and states:
'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.'
Paragraph 40 of SGR 2009/2 further expands the ordinary hours of work to directors and states that all fees paid to a company director are earnings in respect of the director's ordinary hours of work.
Summary
As the agreement between the Principal and the Director do not specify ordinary hours of work and the award states that the package the directors receive comprises of a set annual salary paid, the full amount is subject to superannuation guarantee. The fact that the payment may be part cash and part in-specie (shares) does not change the nature of the earnings from being salary and wages.
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