Edited version of your written advice

Authorisation Number: 1013109295466

Date of advice: 11 November 2016

Ruling

Subject: Is a dual occupancy allowance included in ordinary time earnings?

Question

Is a 'dual occupancy allowance' paid to employees, who are required to share accommodation at a worksite, included as part of their ordinary time earnings ('OTE') for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes

This advice applies for the following periods:

Income year ending 30 June 201X

Income year ending 30 June 201X

Income year ending 30 June 201X

We considered these to be the relevant facts

You lodged a private ruling application on behalf of the employer requesting advice as to their superannuation guarantee ('SG') obligations with respect to a 'dual occupancy allowance' paid to employees who are required to share accommodation at a worksite.

The application included a number of attached documents.

Based on the information provided we considered the following to be relevant facts:

● Dual occupancy is an arrangement where each room accommodates two people but only one occupant is in residence at any one time. In each dual occupancy room, one occupant will be on night shift and the other occupant will be a day worker employed by the same employer.

● This arrangement is currently only open to employees whose scope of work requires them to work day and night shifts.

● Employees who participate in dual occupancy are paid an allowance at a daily rate in recognition of the inconveniences of dual occupancy.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1).

Superannuation Guarantee (Administration) Act 1992 subsection 11(1).

Reasons for decision

Why we have made this decision

Summary

The 'dual occupancy allowance' paid to employees of the employer is included as part of their ordinary time earnings ('OTE') for the purposes of subsection 6(1) of the SGAA.

Detailed reasoning

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 Commissioner explains the meaning of OTE as defined by subsection 6(1) of the SGAA in Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: Meaning of the terms 'ordinary time earnings' and 'salary or wages' ('the Ruling').

Paragraph 12 of the Ruling states the following with respect to the meaning of 'earnings':

12. 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 the Ruling state the following with respect to the meaning of 'ordinary hours of work':

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 employee's '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 to 26 of the Ruling provide that earnings 'in respect to ordinary hours of work' means all earnings other than overtime, and states the following:

25. 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. 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 be 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.

At paragraph 27 of the Ruling, the Commissioner states the following with respect to 'Allowances and loadings':

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 $2.50 per hour to employees, such as some supermarket 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 (see paragraph 72 of this Ruling); or

relate solely to hours of work other than ordinary hours of work (see paragraphs 41 to 43 of this Ruling).

'Salary or wages' is defined by subsection 11(1) of the SGAA, which provides the following:

In this Act, salary or wages includes:

(a) commission; and

(b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

(c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and

(d) payments to a person for work referred to in subsection 12(8); and

(e) remuneration of a person referred to in subsection 12(9) or (10).

Paragraph 49 of the Ruling provides the following with respect to the definition of 'salary or wages':

49. The SGAA defines 'salary or wages' inclusively in section 11. Unless specifically excluded, payments are included in the definition of 'salary or wages' if they satisfy the ordinary or common law meaning of that term or if they fall within the extended definition in subsection 11(1).

Paragraph 65 of the Ruling provides the following with respect to 'Allowances' which are included in 'salary or wages':

65. For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'. Expense allowances are dealt with under paragraph 72 of this Ruling.

Paragraphs 72 to 73 of the Ruling provide the following with respect to 'Expense allowances and reimbursements':

72. Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'

73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary or wages'.

Appendix 2 to the Ruling is provided as information to help you understand how the Commissioner's view has been reached. Paragraphs 259 to 265 of the Ruling provide the following information in relation to 'Allowances and reimbursements':

259. Section 11 does not expressly include in its definition of 'salary or wages' the term 'allowance'. The Commissioner however interprets the expression as used in the SGAA context as extending to the same kinds of allowances that have been regarded as salary or wages under definitions of 'salary or wages' that expressly include allowances.

260. In Mutual Acceptance, the High Court considered whether a fixed weekly payment to employees who used their own motor vehicles in the course of their duties was an 'allowance' and therefore 'wages' as defined the then Commonwealth Pay-Roll Tax Assessment Act 1941-42. The payment represented partial compensation for the motor vehicle expenses to be incurred by those employees.

261. In discussing what may be considered as the ordinary meaning of an 'allowance' Latham CJ in Mutual Acceptance stated that an allowance paid as compensation for unusual conditions of services:

… represents higher wages paid on account of special conditions, and may be fairly described as part of wages in the ordinary sense (emphasis added)

262. Mutual Acceptance was relied upon in Road and Traffic Authority of NSW v. Federal Commissioner of Taxation where the employees received fare allowances under the relevant award for travel to and from work. They were paid regardless of whether or not the employee incurred the expenditure. The question for decision was whether the allowances were expense payment benefits subject to fringe benefits tax or were within the definition of 'salary or wages' in former subsection 221A(1) of the ITAA 1936.

263. Hill J considered the allowance as additional compensation to the employees for their services. There was no need that the remuneration relate to specific services rendered, as long as the payments in question were given as remuneration for services generally. The fare allowances had no relationship to the actual cost of travel incurred by the employees. Accordingly, they were not reimbursements. The fare allowances were held to be 'salary or wages'.

264. An allowance can also be paid to compensate for particular working conditions, for example height, dust or danger. These types of allowances are not expended in the course of the employee's work, but rather, are paid as compensation for the conditions applying to the job.

265. Allowances of this kind are to be distinguished from expense allowances dealt with under paragraphs 72 and 266 of this Ruling.

Application of the Ruling to your case

In accordance with paragraph 25 of the Ruling, 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. There is no such thing as earnings that are merely in respect to employment generally and are not OTE because they are not in respect of any particular hours of work.

Accordingly there is no such thing as “normal hours of work” rather the question is whether the earnings are otherwise referable only to overtime or to other hours that are not ordinary hours of work.

As per paragraph 26 of the Ruling, '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.

The dual occupancy allowance is analogous to the example of a 'site allowance' at paragraph 27 of the Ruling, which states that such an allowance may be paid 'in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location'.

In accordance with paragraph 27 of the Ruling, the dual occupancy allowance will be included in OTE except to the extent that it is not 'salary or wages', for example if it is a payment of a predetermined amount to offset or reimburse particular expenses; or to the extent that it relates solely to hours of work other than ordinary hours of work.

Paragraph 65 of the Ruling states that 'for the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages''.

As per paragraphs 72 to 73 of the Ruling, expense allowances are paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services. Similarly, a reimbursement compensates an employee for an expense they have incurred on behalf of the employer.

Based on the information provided, there is no expectation that an employee will expend the dual occupancy allowance in the course of providing services, or that it is paid to compensate for any expense they have incurred on behalf of the employer. Therefore the dual occupancy allowance is not a payment made to offset or reimburse particular expenses. It is a payment made 'as compensation for the conditions applying to the job', as per paragraph 264 of the Ruling.

As per above, there is no such thing as earnings that are merely in respect to employment generally and are not OTE because they are not in respect of any particular hours of work. It follows that for an allowance to relate solely to hours of work other than ordinary hours of work, it must be solely referable to 'overtime' or 'other hours' of work, and not simply to the employment generally.

We note that dual occupancy is only open to employees whose scope of work requires them to work day and night shifts, being their 'ordinary hours of work'.

Based on the information provided, it is clear that the dual occupancy allowance does not relate solely to hours of work other than ordinary hours of work (such as 'overtime hours' or other hours of work), therefore it is an allowance that will be included in OTE as per paragraph 27 of the Ruling.

As per paragraphs 13 to 14 of the Ruling, an employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the agreement that governs the employee's conditions of employment. The agreement needs to draw a genuine distinction, for the purposes of the agreement, between ordinary hours and other hours of work.

The relevant agreement does not draw a genuine distinction between an allowance applicable to ordinary hours, as opposed to other hours of work.

Conclusion

Based on the information provided, the Commissioner is satisfied that the 'dual occupancy allowance' paid to employees of the employer is included as part of their OTE for the purposes of subsection 6(1) of the SGAA.

Accordingly, the employer has an obligation to pay superannuation guarantee contributions based on the employee's OTE inclusive of the dual occupancy allowance.

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