Edited version of your written advice

Authorisation Number: 1051253303046

Date of advice: 20 July 2017

Ruling

Subject: Superannuation guarantee

Question

What are the ordinary hours of work of those Employees engaged under Employment Contracts which are underpinned by the Relevant Award 2010 for the purpose of calculating ordinary time earnings (OTE) in respect to the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

The ordinary hours of work for the purpose of calculating the OTE of the relevant Employees employed by the Employer under Employment Contracts which are underpinned by the Award in respect of the SGAA are an average of 38 hours per week.

We considered these to be the relevant facts

● The Employees are engaged under Employment Contracts with the Employer.

● Employment Contracts specifies following:

● Ordinary hours of work are 38 per week

● The Employees will be required to work approx. 10-12 hours per day (Monday to Friday)

● Penalty rates will be paid as required in accordance with the Relevant Award 2010 (the Award)

● Superannuation contributions will be made according to SGAA

● The Award states that the hours for an ordinary week’s work shall be an average of 38 hours per week.

● The penalty rates for overtime are prescribed under the Award. It states that all work performed by an employee outside of their ordinary hours must be paid at the rate of time and a half for the first three hours and double time thereafter.

● Any overtimes done during a pay period has been loaded with the penalty rates prescribed in the Award.

● The overtime work payments are clearly distinguished from payment for the ordinary hours work.

Assumptions

No assumptions have been made.

Relevant legislative provisions

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

Reasons for decision

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 percentage.

From 1 July 2008, 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.

Some employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee’s OTE, but SGAA obligations will only be assessed against OTE.

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 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’ (SGR 2009/2).

Ordinary hours of work

The meaning of 'ordinary hours of work’ is discussed in paragraphs 13 to18 of SGR 2009/2 and is further clarified in paragraphs 189 to 210 of SGR 2009/2.

Paragraphs 13 to 15 and 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 employee's '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 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.

Appendix 2 of SGR 2009/2 provides an explanation of the legislative context applied to assist taxpayers to understand how the Commissioner’s view has been reached. Paragraphs 225 to 228 specify that earnings 'in respect of ordinary hours of work’ means all earnings other than overtime.

Relevantly, paragraphs 225 and 226 state:

225. 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.

226. 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.

Application of the law in these circumstances

In this case the Employer engages the Employees under Employment Contracts which are underpinned by the Award.

The relevant Employees signed Employment Contracts which specify that:

● They are full time employees

● Their ordinary hours of work is 38 hours per week

● They will be required to work overtime but this will be paid at penalty rates prescribed in the Award

● That annual leave and sick leave is paid accordance with the Award

The Award specifies that an employee’s ordinary hours of work for a full-time employee are to be an average of 38 hours per week.

Paragraph 14 of SMSFR 2009/2 provides that the relevant award or agreement must draw a genuine distinction between ordinary hours and other hours. Furthermore, it is expected that these other hours, typically described as overtime, are remunerated at a higher rate of pay than the ordinary hours or are otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

As provided in paragraph 25 of SGR 2009/2, 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, or are otherwise referrable to overtime or other hours that are not ordinary hours of work.

In applying paragraph 14 of SMSFR 2009/2 to this case, the Award specifies that a full time employee’s ordinary hours of work will be an average of 38 hours per week.

In this case, the Employees are paid penalty rates in accordance with the Award for the excess hours worked over the ordinary hours. Paragraph 15 of SMSFR 2009/2 states that any hours worked outside the span or in excess of those specified ordinary hours of work do not form part of an employee’s 'ordinary hours of work’.

Therefore, it is considered in this case:

● the Award specifies the Employees ordinary hours of work to be an average of 38 hours per week;

● any excess hours worked are paid at higher penalty rates according to the Award; and

● any overtime payments are clearly identified as separate components of the total pay.

Therefore the overtime hours are not the employee’s 'ordinary hours of work’.

Conclusion

Based on the information provided, the Commissioner is satisfied that the ordinary hours of work for the purpose of calculating the OTE under subsection 6(1) of the SGAA are an average of 38 hours per week.

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