Edited version of private advice

Authorisation Number: 1051593249232

Date of advice: 18 October 2019

Ruling

Subject: Ordinary time earnings, allowances, overtime, leave loading

Question 1

Are the ordinary hours for continuous shift workers under the relevant awardsan average of 38 hours per week for determining Ordinary Time Earnings (OTE) under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes

Question 2

Are night allowances paid to continuous shift workers under the relevant awards included in OTE under subsection 6(1) of the SGAA?

Answer

Yes, as long as they are paid for ordinary hours.

Question 3

Is annual leave loading paid to continuous shift workers under the relevant awards included in OTE under subsection 6(1) of the SGAA?

Answer

Yes

Question 4

Are the ordinary hours for non-continuous shift workers under the relevant awards an average of 38 hours per week for determining OTE under subsection 6(1) of SGAA?

Answer

Yes

Question 5

Is annual leave loading paid to non-continuous shift workers under the relevant awards included in OTE under subsection 6(1) of the SGAA?

Answer

Yes

Relevant facts and circumstances

Continuous shift workers

Employees are categorised as 'continuous shift workers' and work on a 4 days on/4 days off rotational roster.

Employees are required to work a 12 hour shift on each day they are rostered.

Both the continuous shift workers and the non-continuous shift workers do not receive a rostered day off.

You could not provide us with any policy documentation that states that the continuous shift workers are required to work 12 hours shifts for a continuous period of four days or that after reaching 7.6 hour in any one day they will be paid overtime rates.

You provided us with a copy of a roster.

Ordinary Hours

The ordinary hours of continuous shift workers are, at the discretion of the employer, to average 38 hours per week inclusive of meal breaks and must not exceed 152 hours in 28 consecutive days.

As employees are required to work 12 hour shifts for a continuous 4 days, this equates to a 48 hour work shift.

Where the employee exceeds 38 hours in the week due to the rostering system, instead of paying overtime rates once the employee has worked 38 hours in a week, the company pays overtime rates for hours in excess of 7.6 per rostered workday.

7.6 hours is calculated by dividing 38 hours by five working days per week.

Overtime Hours

All work done outside ordinary hours on any day or shift, the overtime rate is time and a half for the first three hours and double time thereafter until the completion of the overtime work. For a continuous shift worker the rate for working overtime is double time.

Overtime hours are paid at penalty rates of 150% or 200% depending on the day they are worked and the category of the relevant employee.

The manner in which the company calculates its superannuation guarantee obligations differs from their method of determining where shift loading is payable.

Annual Leave

When on annual leave the employees need to be paid the wages they would have received in respect of their ordinary hours that they would have worked had they not been on leave.

Leave Loading

Workers on shift work had they not been on leave must be paid a loading equal to 17.5% of wages or the shift loading including relevant weekend penalty rates, whichever is the greater.

The company employees are therefore remunerated at:-

17.5% x Base Rate x Annual leave hours

Currently the company does not include annual leave loading as part of OTE.

Allowances

The awards outline the night shift allowances. The allowance is based on an hourly rate and for a particular group of employees is multiplied by 150% to recognise their classification level in accordance with the award.

Non-continuous shift workers

Ordinary Hours

Non-continuous shift workers are required to work a 38-40 hour work week. These employees work Monday to Friday from 8am to 5pm.

The ordinary hours of work for non-continuous shift workers are an average 38 hours per week and must not exceed 152 hours in 28 consecutive days.

The company pays these employees at their base rates for time within the 38 hour limit. Any time exceeding this limit is considered overtime and paid at penalty rates.

The calculation of SG contributions for these employees is calculated in the same manner as for the continuous shift workers.

Overtime Hours

The hours treated as overtime hours worked by employees of the company (over 38 hours per working week) are not considered ordinary time earnings by the company.

Annual Leave

The annual leave requirements are the same as set out in the awards for non-continuous shift workers.

Leave Loading

The annual leave loading requirements are the same as set out in the awards for non-continuous shift workers.

Allowances

You did not mention any allowances paid to non-continuous shift workers.

Reasons for decision

Questions 1 - 4 Continuous shift workers.

Summary

The Commissioner has considered that 38 hours is ordinary hours for continuous shift workers when considering what forms part of OTE. Overtime, allowances, leave loading have also been considered and explanations provided.

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.

For a payment to constitute 'earnings in respect of ordinary hours of work', the payment must be considered 'earnings' of the employee and the earnings must be paid in respect of the employee's 'ordinary hours of work'.

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'.

Paragraph 25 of SGR 2009/2 explains what is meant by the phrase 'in respect of ordinary hours of work'. 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.

In particular, the ruling states that:

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 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.

Overtime

Paragraphs 41 to 46 of SGR 2009/2 relate to certain specific kinds of payments that are not OTE. These certain specific kinds of payments include overtime, on-call allowances and certain payments that are not salary or wages.

Paragraphs 41 to 43 of SGR 2009/2 relate to overtime and state:

41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.

42. This is so whether the payments are calculated at an hourly rate or the employee gets a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referrable to overtime hours or as remuneration for overtime hours worked.

43. However, some employees, particularly some managers and professionals, receive a single undissected annual salary within a remuneration package that recognises in a non-specific way that the employee may often be expected to work more than the ordinary hours of work prescribed. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable as mentioned in paragraph 42 of the ruling.

Paragraphs 225 to 228 of SGR 2009/2 specify that earnings 'in respect of ordinary hours of work' mean all earnings other than overtime.

Leave Loading

Historically, annual leave loading was paid to compensate workers for extra payments they would have received if they weren't on leave, in some cases specifically for overtime. However, analysis revealed that in many cases the leave loading was being paid for other reasons, such as penalty rates, shift allowances and holiday bonuses. Recognising this, the Commissioner's view was updated for quarters commencing 1 July 2009.

Paragraph 238 of SGR 2009/2 outlines:

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. However, the loading is always included in 'salary or wages'.

The 'demonstrably referrable' requirement can be met if the wording in the relevant documented evidence clarifies the reason the loading is being paid. The Commissioner's view is this evidence needs to clearly specify the reason the annual leave loading is being paid. If it is for a lost opportunity to work overtime it would be excluded from OTE. The relevant evidence may be for example:

·        An award or agreement that includes the annual leave loading entitlement, or

·        Documented policy that reflects the mutual understanding of both parties to the agreement that gives rise to the entitlement.

Allowances

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. Paragraph 27 of SGR 2009/2 relates to certain specific kinds of payments that are OTE and states:

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:

26.  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;

27.  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;

28.  a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

29.  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:

30.  are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses; or

31.  relate solely to hours of work other than ordinary hours of work.

Paragraph 27 of SGR 2009/2 provides that additional payments made to employees to recognise or compensate employees for certain conditions relating to their employment are OTE except to the extent that they relate solely to hours of work other than ordinary hours of work.

Application to your circumstances

In your case you have an award which specifies what your employees' ordinary hours of work are.

OTE

The Awards state that the ordinary hours of continuous shift workers are, at the discretion of the employer, to average 38 hours per week inclusive of meal breaks and must not exceed 152 hours in 28 consecutive days.

As employees are required to work 12 hour shifts for a continuous 4 days, this equates to a 48 hour work shift.

In applying paragraph 14 of SGR 2009/2 to this case, the Awards clearly specify that the ordinary hours of work are an average 38 hours per week and no more than 152 hours in 28 consecutive days.

In accordance with this, a continuous shift worker can work any variation of hours per week in a 24 hour cycle, as long as they average 38 hours in a week or 152 hours over a four week period. Hours in excess of 38 hours per week are considered to be overtime.

Due to the rostering system some employees work more than 38 hours in a week even though they are not performing overtime work.

The approach the company has taken as outlined above is not in line with the relevant Awards. Given that the Awards states that he ordinary hours of work are 38 hours for the week, the Commissioner does not consider the 'ordinary hours of work' of the employees to be limited to 7.6 hours in any one day. But rather a total of 38 hours in any seven day period or 152 hours in any 28 day period. The current Awards do not specify or define the ordinary hours of work per day.

Allowances

In this case, employees are paid an allowance when they work night shifts.

In line with SGR 2009/2 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.

Paragraph 27 of SGR 2009/2 provides that allowances and loadings that are paid to employees to recognise or compensate for certain conditions relating to their employment are OTE unless they are an expense allowance, a reimbursement or the allowance relates solely to the hours of work outside the employee's ordinary hours of work.

As the night shift allowance is paid in respect of each hour the employee works and the total hours the employees' work consists of both ordinary hours and overtime hours, the part of the night shift allowance that relates to the employee's ordinary hours of work forms part of the employee's OTE. The part of the night shift allowance that relates to the employee's overtime does not form part of the employee's OTE.

Leave Loading

Most awards do not specifically state the reason the annual leave loading entitlement is provided. Neither of the awards specifies what the loading is for except to say that employees must be paid a loading of 17.5% of their wages or the relevant penalty rates whichever is greater but not both..

Currently the company does not include leave loading as OTE.

In the Awards, there is no reason given for the payment of annual leave loading and it is paid to both day and shift workers. Hence it is considered that the annual leave loading is not demonstrably referable to a notional loss of opportunity to work overtime. As such, the annual leave loading forms part of OTE payable when an employee is on leave.

Questions 4-5 Non-continuous workers

Summary

The Commissioner has considered that 38 hours is ordinary hours for non-continuous shift workers when considering what forms part of OTE. Overtime, allowances, leave loading have also been considered and explanations provided.

OTE

38 hours is considered OTE and anything above that would be considered overtime, as per the awards.

Overtime

You have stated in the facts that hours treated as overtime hours worked by the employees of the company (over 38 hours per week) are not considered OTE by the company.

Leave Loading

As stated previously in regards to continuous shift workers, it is considered that annual leave loading paid under the Awards is not demonstrably referable to a notional loss of opportunity to work overtime. As such, the annual leave loading forms part of OTE payable when an employee is on leave.

Allowances

You did not provide any details of allowances paid to non-continuous shift workers. For the purposes of the SGAA, all allowances received by an employee, except expense allowances, allowances that are fringe benefits under the Fringe Benefit Tax Assessment Act 1986 (FBTAA) or those relating solely to hours of work other than ordinary hours of work are included in 'salary and wages' and the employee's OTE.

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