Edited version of administratively binding advice

Authorisation Number: 1011505990075

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Subject - OTE and ordinary hours of work

1. Does an amount paid to employees covered by the Award in respect to hours above the ordinary hours of 38 hours per week form part of the employees ordinary time earnings (OTE) for the purposes of subsection 6 (1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

No, the amount does not form part of the employees OTE for the purposes of subsection 6 (1) of the SGAA

2. Does an amount paid to employees covered by the employment agreement in respect to hours above the ordinary hours of 38 hours per week form part of the employees ordinary time earnings (OTE) for the purposes of subsection 6 (1) of the SGAA?

No, the amount paid does not form part of the employees OTE for the purposes of subsection 6 (1) of the SGAA.

This advice applies for the following period/s:

Period ending 30 June 2011

The arrangement commences on:

1 July 2009

Relevant facts and circumstances

This 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 Tax Office advice.

Employees are covered under an employment contract. A copy of this contract has been provided and should be read in conjunction with this ruling.

The ATO received your request for administratively binding advice with respect to the earnings base for employees in a specified location. In that application you provided the following information:-

· Employees working in the location regularly work over XX hours per week.

· These employees receive a fixed rate for each and every hour worked in lieu of calculating the Award rate, plus overtime, penalties and other allowances.

· No contract of employment currently exists for these employees.

In response to our request for further information you sent the following information:

· In calculating the rate of pay for employees, consideration is made to the industry 'norm'. You pay a flat rate of pay for each and every hour because it is easier to manage from an administrative point of view.

· The location is taken into consideration in ascertaining the employee's rate of pay. For example, you would not get people to work in such remote locations on the same provisions as those provided in a major city.

· No other information is used to distinguish between normal working hours and overtime. It is considered normal to expect employees to work additional hours over and above 38 hours per week due to their location and the nature of the work in the industry.

In a telephone conversation with the ATO you advised that whilst employees were covered under an employment contract, up until new contracts came into effect there was no mention of ordinary time earnings. This has been corrected and new employment contracts that are to commence will specify that except as provided elsewhere, the employee's ordinary hours shall be 38 per week to be worked in accordance with any relevant Federal or State legislative instrument or Award.

Relevant legislative provisions

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

Superannuation Laws Amendment (2004 Measures No 2) Act 2004

Reasons for decision

Summary

Hours worked in excess of 38 ordinary hours for employees will be considered overtime and will not form part of the employees OTE for the purposes of subsection 6 (1) of the SGAA.

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 superannuation support is calculated by multiplying the charge percentage (currently 9%) by the employee's earnings base.

The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for superannuation guarantee (SG) purposes. The SG amendments, which applied from 1 July 2008, have the effect that all employers will calculate their SG liability against an employee's ordinary time earnings (OTE), as defined under subsection 6(1) of the SGAA.

From 1 July 2008, employers will still be able to use the notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and is the lesser of:

· the total of the employees 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 the termination of employment in lieu of unused sick leave and unused annual leave.

· the maximum contribution base for the quarter, which is the upper limit on the amount of superannuation support that an employer is expected to provide for the benefit of the employee. The maximum contribution base for the income year ended 30 June 2010 is $40,170 per quarter.

The Commissioner's view on OTE, as defined in subsection 6(1) of the SGAA is set out in Superannuation Guarantee Ruling (SGR) 2009/2.

Paragraph 13 of SGR 2009/2 states that 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.

Earnings in respect of ordinary hours of work

For a payment to constitute earnings in respect of ordinary hours of work, two conditions need to be satisfied:

· the payment must be considered earnings of the employee, and

· the earnings must be made in respect of the employees ordinary hours of work, regardless of the label given to the payment or applicable rate of pay.

In the context of the SGAA, the term 'earnings', refers to the remuneration paid to an employee, as a reward for the services of the employee.

Ordinary hours of work

The meaning of ordinary hours of work is clarified in paragraphs 13 to 18 of superannuation guarantee ruling SGR 2009/2.

Paragraph 13 of SGR 2009/2 provides that the ordinary hours of work may be specified in a statute or under an industrial award, in which case the specified hours of work are also the ordinary hours of work under the SGAA.

Any hours worked in excess of those ordinary hours set out in an award or agreement (commonly referred to as overtime), are not generally ordinary hours of work. This is supported by paragraph 25 of SGR 2009/2 which states that overtime payments are paid to an employee for work performed outside their ordinary hours of work. It follows that overtime, in the true sense of the term, refers to hours worked by an employee outside their ordinary hours of work.

Hours specified in an award

Workers are covered by employment contracts and the Award. Where ordinary hours are not mentioned in an employment contract or the stated ordinary hours in the employment agreement is below that stated in the Award, the provisions of the Award apply.

The Award states that, with the exception of shiftwork, the ordinary working hours will be 38 per week, worked between 7.00 am and 6.00 pm, Monday to Friday.

Whilst the Award provides the hours of work for shift workers, it does not specify the total ordinary hours of work in a week. The relevant total ordinary hours of work in a week reverts back to 38 hours per week as in the provisions of the Award relating to hours will apply to workers doing shiftwork.

The Award describes overtime to non-shift workers as all time worked beyond an employee's ordinary time of work (inclusive of time worked for accrual purposes as prescribed.

Where an employees working arrangements are consistent with the operation of an award (that is, they are employed in accordance with the terms and conditions of the award), they will be covered by the award. The employees ordinary hours of work will be those hours specified in the award, consistent with paragraph 13 of SGR 2009/2. Any additional hours worked outside these hours will not form part of the employee's ordinary hours of work.

In some cases an award will contain a clause allowing the parties to vary the employees ordinary hours of work from those specified in the award (for example, varying the span of ordinary hours). Where an employee's ordinary hours of work are varied by virtue of such a clause, the employee remains covered by the award in the sense that they are employed in accordance with its terms and conditions and paragraph 13 of SGR 2009/2 will therefore still operate.

For the purposes of the SGAA, the employee's ordinary hours of work will be those hours specified by the agreement between the parties, or those hours usually worked by the parties, as permitted under the Award. This will be the case regardless of the rates of pay that apply to those hours, including overtime or penalty rates.

You have advised that employees are paid a flat rate based on approximately 38 hour working week. The rate of remuneration is not a reference point from which we can specify the ordinary hours of an employee. It does however indicate that you may be paying Superannuation guarantee at an above award rate.

Ordinary time earnings in an employment contract

In this case, you have advised that employees to be covered by this advice are employed under both an employment contract and the Award. 

In your request for administratively binding advice you state that the new employment contract that commenced specifies that except as provided elsewhere, the employee's ordinary hours shall be 38 per week to be worked in accordance with any relevant Federal or State legislative instrument or Award.

This clause effectively supports the definition of ordinary hours of work specified in the Award and therefore the specified hours of work are also the ordinary hours of work under the SGAA.