Edited version of private advice

Authorisation Number: 1051529463597

Date of advice: 13 June 2019

Advice

Subject: Superannuation - Allowances paid on overtime

Question

Is the allowance paid to employees on their overtime earnings form part of their ordinary time earnings (OTE) for the purposes of section 6 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) ?

Answer

No

This advice applies for the following periods:

For periods ending quarter 1, quarter 2, quarter 3 and quarter 4 of the 20XX year.

For periods ending quarter 1, quarter 2, quarter 3 and quarter 4 of the 20XX year.

The arrangement commences on:

1 July 20XX

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

You provided a copy of the applicable Enterprise Bargaining Agreement (EBA) affiliated with your industry.

The EBA has expired but has not been terminated so is still in effect.

The conditions in the EBA which we noted were the clauses about wage rates, superannuation, OTE, hours of work/rostered days off and overtime hours.

The allowance is paid on the hours that the employee is physically on the site.

Overtime hours are worked both during the week and on Saturdays.

The allowance is paid on the overtime hours because this allowance is payable on all hours physically worked whilst attending the job site.

Assumptions

Nil

Relevant legislative provisions

Subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

Allowances paid on overtime are excluded from OTE.

Detailed reasoning

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 superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9.5%) by each employee's earnings base.

From 1 July 2008, an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

Definition of 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 loadings or commissions, but does not include lump sum payments made on the termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or

(b) the maximum contributions base for the quarter - the maximum contributions 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. 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' (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.

In summary SGR 2009/2explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span of those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, the ruling states that:

25. An amount 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 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.

Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless these are remuneration for overtime or other hours that are not ordinary hours of work.

Application of the law to your circumstances

Under paragraph 25 of SGR 2009/2, all amounts of earnings are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are referrable only to overtime hours.

The EBA for your organisation clearly states what is considered ordinary time. Anything outside these hours and days would constitute overtime. It therefore holds that this particular allowance incurred during overtime is also excluded from OTE.

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