Edited version of private advice

Authorisation Number: 1052208012784

Date of advice: 22 January 2024

Ruling

Subject: Superannuation guarantee - ordinary time earnings

Question 1

Does the proposed Standby Allowance for the Group A employees covered by the X Enterprise Agreement (the Group A EA) constitute their ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes.

Question 2

Does the Cost of Living Adjustment (COLA), defined in the Group A EA constitute the Group A employees' OTE as defined in subsection 6(1) of the SGAA 1992?

Answer

Yes.

Question 3

Does the COLA, defined in the Y Enterprise Agreement XXXX (the Group B EA) constitute the Group B employees' OTE as defined in subsection 6(1) of the SGAA 1992?

Answer

Yes.

This advice applies for the following periods:

Financial year ending 30 June 2024

Financial year ending 30 June 2025

Financial year ending 30 June 2026

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

X is the employer (the Employer) of its employees.

The Employer's Group A employees are covered by the Group A EA.

The Employer's Group B employees are covered by the Group B EA.

The Standby Allowance

The Group A EA provides,

...

On call rostered Group A employees are available X hours per day, working within X management guidelines.

...

The Employer proposed to pay its Group A employees with a Standby Allowance for them to respond to X situations in a timely manner (within X minutes).

The Employer provided:

•         The proposed Standby Allowance will only be paid to the Group A employees who are covered by the Group A EA. Any other employees will not be paid this allowance.

•         The 'standby' period that the Standby Allowance relates to, will only occur during rostered days (excludes rostered days off).

•         During the rostered days, the Group A employees are paid with base salary ... They are not paid overtime rate.

•         The proposed Standby Allowance will be paid at a fixed rate....

The COLA payment

The Group A EA provides:

This classification of employees receives a COLA payment, where in certain periods, CPI in the relevant year exceeds the corresponding base wage increase for that year.

Clause X of the Group A EA lists the components of base salary, which includes:

(i) Annual leave loading amounts;

(ii) District allowances amounts;

(iii) X Payment which is included in the superannuated salaries, in recognition of the particular complexities of the X environments; and

(iv) Individual Performance Bonus of X% of the total superannuated annual salary per year.

The Group B EA provides:

This classification of employees receives a COLA payment, where in certain periods, CPI in the relevant year exceeds the corresponding base wage increase for that year.

Relevant legislative provisions

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

Reasons for decision

Question 1

Does the proposed Standby Allowance for the Group A employees covered by the X Enterprise Agreement (the Group A EA) constitute their ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Summary

Superannuation Guarantee is payable on the Standby Allowance as it is considered 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 relevant due date or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage 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

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

(a) the total of:

(i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997;

(ii) earnings consisting of over-award payment, shift loading or commission; or

(b)  If the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

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.

OTE is generally what employees earn for their ordinary hours of work, including commissions, allowances (excluding expense allowances) and paid leave and do not include reimbursements or overtime payments.

The Commissioner's views on OTE, 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).

SGR 2009/2explains that

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'.

Allowances

SGR 2009/2 also explains that

27   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.

28   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; or
• relate solely to hours of work other than ordinary hours of work.

Furthermore, paragraph 45 of SGR 2009/2 explains that where an on-call allowance is paid during ordinary hours of work, this is considered OTE.

The Standby Allowance

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.

In this case, clause X of the Group A EA provides, on call rostered Group A employees are available X hours per day.

The Commissioner considers that the entire X hours per day of the on call rostered days are ordinary hours of work.

The proposed Standby Allowance, as confirmed by the applicant, would only be made for rostered days, along with the consideration that the Group A employees are not paid overtime rate during the rostered days, it is reasonable to conclude that the Standby Allowance is connected with ordinary hours of work, therefore OTE in nature. It leads to an outcome that SG is payable on it.

Conclusion

SG is payable on the Standby Allowance.

Question 2

Does the Cost of Living Adjustment (COLA), defined in the Group A EA constitute the Group A employees' OTE as defined in subsection 6(1) of the SGAA 1992?

Summary

SG is payable on the COLA payment defined in the Group A EA as it is considered OTE.

Detailed reasoning

As explained in Question 1 of this advice, where a payment for an employee is considered OTE of the employee, the employer is liable for SG on such payment.

Clause X of the Group A EA provides, At the end of Year X, Year X and Year X of this Agreement eligible employees will be entitled to a COLA payment if CPI in the relevant year exceeds the corresponding base wage increase for that year.

Clause X of the Group A EA lists the components of base salary, which includes:

(i) Annual leave loading amounts;

(ii) District allowances amounts;

(iii) X Payment which is included in the superannuated salaries, in recognition of the particular complexities of the X environments; and

(iv) Individual Performance Bonus of X% of the total superannuated annual salary per year.

Based on the explanations under SGR 2009/2:

Paragraph 67 states, payments of salary or wages retain their character as such while the employee is on any period of paid leave. However, payments made to an employee while he or she is on parental leave or certain other kinds of ancillary leave are excluded from salary or wages. This supports that the clause X(i) Annual leave loading amounts are OTE.

Paragraph 27 of SGR 2009/2, as referred to in Question 1, suggests that clause X(ii) District Allowances amounts and clause X(iii) X Payment are OTE.

Paragraph 28 states, additional earnings received as a reward for good performance, and other like 'bonus' payments, are OTE in most cases. Exceptionally, a discrete and clearly identifiable bonus payment may relate solely to work performed entirely outside ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to entirely in non-ordinary hours. This paragraph suggests that clause X(iv) Individual Performance Bonus of X% of the total superannuated annual salary per year is most likely OTE.

Given all the 4 listed components are OTE in nature, the Commissioner believes that the 'base salary' is OTE.

Further, the COLA payment under the Group A EA can be seen as 'an adjustment payment for base salary/wage', it therefore retains the OTE character of the base salary.

Conclusion

SG is payable on the COLA payment.

Question 3

Does the COLA, defined in the Y Enterprise Agreement XXXX (the Group B EA) constitute the 'Group B employees' OTE as defined in subsection 6(1) of the SGAA 1992?

Summary

SG is payable on the COLA payment defined in the Group B EA as it is considered OTE.

Detailed reasoning

Clause X of the Group B EA contains almost identical description for the COLA payment as in the Group A EA.

Although the Group B EA does not list the component of base salary/wage, there is no suggestion that the base salary/wage is remuneration for overtime or other hours that are not ordinary hours of work. The same conclusions can therefore be reached:

•         the 'base wage' is OTE.

•         the COLA payment under the Group B EA can be seen as 'an adjustment payment for base wage', it therefore retains the OTE character of the base wage.

Conclusion

SG is payable on the COLA payment.

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