Edited version of your written advice

Authorisation Number: 1051276197366

Date of advice: 2 October 2017

Advice

Subject: Ordinary time earnings

Question 1

Is Crib allowance considered ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No

Question 2

Is Tool allowance considered OTE for the purposes of subsection 6(1) of the SGAA?

Advice

No

Question 3

Does the entitlement to receive annual leave loading provided for in clauses 24.11 and 24.12 of the relevant collective agreement form part of an employee’s OTE for the purposes of subsection 6(1) of the SGAA?

Advice

No

Reasons for decision

Superannuation Guarantee Ruling SGR 2009/2 (SGR 2009/2) explains the meaning of OTE and provides examples to assist in determining whether an amount paid to an employee is OTE or not.

Under section 6(1) of the SGAA, OTE is earnings in respect of ordinary hours of work other than a lump sum payment. As such, allowances paid in relation to work done outside of ordinary hours of work such as overtime meal allowances or crib allowances would not form part of OTE.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) explains that the definition of ‘salary and wages’ is an inclusive definition, therefore, 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) of the SGAA, unless they are specifically excluded,

Moreover the ruling highlights (at paragraph 27) that:

“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…

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).

Similarly paragraph 65 of SGR 2009/2 explains 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’…”

Hence, SGR 2009/2 considers that 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.

However, an expense allowances is an allowance that is paid to an employee with a reasonable expectation that the employee will fully expend the money whilst providing their services.

Consequently, crib allowance should not be included in salary or wages as the allowance is still paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services.

The following example from SGR 2009/2 is relevant to your situation.

Example 10 – Expense allowance expected to be fully expended

Matteo is an employee of JJ Investment Pty Ltd. In addition to his usual salary, Matteo is paid $300 per month to cover expenses he is expected to incur while visiting clients. The expenses Matteo incurs are for travel to client sites, maintenance of a mobile phone and internet access to remotely connect to the office. The allowance is a predetermined amount which has been calculated to cover the estimated expense and is given with the expectation that it will be fully expended in the course of the employee providing the services to the employer.

Salary or wages

As the allowance is not a reward for the services which he is providing as an employee of the company, the payment is not considered to be ‘salary or wages’.

OTE

A payment cannot be OTE unless it is ‘salary or wages’. As Matteo’s allowance is not ‘salary or wages’, it is not OTE.

Allowances such as a crib allowances or tool allowances do not form part of OTE as they are payments of a predetermined amount to offset expenses expected to be fully expended.

Annual leave loading

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.

You have advised that the company a leave loading for waged employees who are covered by collective bargaining agreements. You have included a copy of the relevant collective agreement with your application. Under this agreement, clause XX covers annual leave loading. It states:

Each employee shall be paid the wages an employee would have received in respect of the ordinary time the employee would have worked had the employee not been on leave during the relevant period.

Paragraph 25 of the 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.

In this case, the payment received by employees under the Agreement, is clearly referrable to the loss of opportunity to work overtime. As such the payment does not form part of OTE for the purpose of subsection 6(1) of the SGAA.

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