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Advice

Subject: Superannuation Guarantee - Ordinary Time Earnings

Question

Should the 'Flat Rate', as defined in the Workplace Agreement, be used in calculating an employee's OTE for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer:

No, the Group should be using the Base rate of pay plus any applicable shift allowances for the calculation of OTE for the purposes of subsection 6(1) of the SGAA. Please see explanation below.

Relevant facts

The Group has a Workplace Agreement based on the Fair Work Australia (FWA) Modern Award for the Group.

The pay rates from the Award are applied.

Base rate of pay is under the Award.

Ordinary hours of work under the Award are 38 hour per week.

The majority of the Group's drivers work shift work and generally work an Y hour shift.

For ease of payroll processing, the Group has calculated a Flat Rate of pay that includes ordinary hours, overtime at penalty rates, shift allowance and meal allowance.

The calculation of the Flat Rate of pay is explained to the drivers, and their letter of offer states that the flat rate of pay includes overtime, shift allowance and meal allowances.

The Flat Rate of pay that the Group has calculated is $X per hour for all hours worked, and based on the Y hours per day.

The use of the Flat Rate of pay is not a requirement under the Workplace Agreement.

Below are extracts of relevant clauses, defining terms and conditions as contained within the Workplace Agreement:

2.1 Definitions

For the purposes of this agreement:

'Base Rate' means the Transport Workers weekly award rate as applicable for the grade classification for duties performed.

'Flat Rate' means the rate of wages agreed upon by the Employer and the Employees.

9.4 Allowances

The rates of pay contained in Clauses 10.1, 10.2, 10.3, 10.5, 10.6, and 11 includes all allowances not covered elsewhere in this agreement.

10.0 Rates of Pay

10.1 Local Truck Drivers and General Hands

Regardless of the hours worked each week, full time Employees will be paid consistently for 38 hours per week at the applicable Flat Rate of pay. All hours worked shall be paid at the Flat Rate of pay. The Flat Rates of pay are listed in Table 10.1 as follows:

10.1.1 The Flat Rates of pay listed in clause 10.1, with the exception of those disabilities, penalties and allowances specifically referred to in this part of this Agreement, includes all disabilities, penalties and allowances associated with the work. The Flat Rates of pay contained in 10.1 includes all allowances and any other "protected conditions" not covered elsewhere in this agreement.

13. Superannuation

For the purposes of this agreement ordinary hours of work, described as "Ordinary Time Earnings", for Employees shall not exceed 38 hours per week.

15. Public Holidays

An Employee, other than a casual Employee, who would ordinarily be required to work on a day on which a public holiday falls will be entitled to 7.6 hours at the Flat Rate for the applicable work ordinarily performed on that day.

Employees rostered and required to work on a public holiday shall work and be paid at the applicable Flat Rate of pay and additionally will be paid 7.6 hours at the Flat Rate for the applicable work performed on that day.

17. Hours of Work

For the purposes of this agreement ordinary hours of work, described as "Ordinary Time Earnings", for Employees shall not exceed 38 hours per week.

For the purposes of this Agreement, the working week will commence at 12 o'clock midnight on Sunday night and finish at 12 o'clock midnight the following Sunday night.

Ordinary hours will be 38 hours averaged annually and be worked to suit the needs of the business plus reasonable additional hours.

Below are extracts of relevant clauses, defining terms and conditions as contained within the Award:

16.3

(e) Meal allowance

Where clause 26.3 applies an employee must be paid a meal allowance of $13.90.

24.3 Shift Allowances

For ordinary hours shiftworkers must be paid as follows:

Shift % of the ordinary time rate

Afternoon shift 117.5

Night shift 130

24.5 Shiftwork - overtime

For all time worked outside or in excess of the ordinary shift hours or on a shift other than a rostered shift, shiftworkers will be paid at time and a half for the first two hours and double time thereafter.

26.3 Meal Allowance

(a) An employee required to work overtime for two continuous hours or more must either be supplied with a meal by the employer of paid the amount specified for a meal allowance in clause 16 - Allowances for each meal required to be taken.

27. Overtime

27.1 For all work done outside ordinary hours the rate of pay will be time and a half for the first two hours and double time thereafter, such double time to continue until the completion of the overtime work.

The Group Wages Calculation - Flat Rate Summary & Comparison (the Wages Calculation) document provides the basis for the calculation of the Flat Rate of pay that includes ordinary hours, overtime at penalty rates (Time & ½ and Double Time), shift allowance and an overtime meal allowance.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 6.

Explanation

Summary

The Group should be using the Base rate of pay, as per the Workplace Agreement, plus any applicable allowances including shift allowances, as per the Award, for the calculation of OTE, on the basis of a 38 hour week, for the purposes of subsection 6(1) of the SGAA.

Detailed reasoning

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

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

The maximum contribution base for the 2012/13 year of income is $45,750 per quarter. This amount is indexed annually according to the indexation factor.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) explains the meaning of OTE as defined in subsection 6(1) of the SGAA. The meaning of OTE is relevant to employers for the purposes of calculating the minimum level of superannuation support required for individual employees under the SGAA.

Hours of work

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.

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'.

Clause 17 of the Workplace Agreement provides the hours of work for employees of the Group. Clause 17 of the Workplace Agreement states that "for the purposes of the agreement ordinary hours of work defined as "Ordinary Time Earnings", for Employee's shall not exceed 38 hours per week". In addition, clause 17 provides the span for hours of work and states that the working week will be between the hours of midnight on Sunday and midnight of the following Sunday.

Therefore, the ordinary hours of work for the Group employee's under the Workplace Agreement are 38 hours of work in a week, worked at any time between Sunday midnight of one week and the following Sunday midnight.

Overtime payments

Under paragraph 41 and 42 of SGR 2009/2 payments made to employee's for work performed that is outside of the employee's ordinary hours of work are not OTE. This is so whether the payments are calculated at an hourly rate or the employee receives a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referable to overtime hours as remuneration for overtime hours worked.

The Award specifies that overtime should be paid for all hours worked outside of the ordinary hours at a rate of time and a half for the first two hours and double time thereafter.

In the Wages Calculation that has been used to calculate the Flat Rate of pay the component referable to overtime is able to be expressly distinguished from other amounts used in the calculation. Therefore, the amount of pay relating to the overtime component is not required to be used when calculating the ordinary time earnings under the SGAA.

Overtime meal allowance

Under paragraph 25 of SGR 2009/2 all amounts of earnings in respect 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.

The meal allowance component used in the Wages Calculation is a meal allowance payable in accordance with the Award under subclause 16.3 (e) and this meal allowance is directly referable to overtime hours because it is paid to an employee who is required to work overtime of two or more continuous hours.

Therefore, this overtime meal allowance is not required to be used in the calculation of the hourly rate used for determining OTE under the SGAA because it is directly referable to overtime.

Shift loading

Under subparagraph 6(1)(a)(ii) of the SGAA, OTE includes any earnings arising from over-award payment, shift loading or commission.

Shift allowances payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements.

Paragraph 22 of SGR 2009/2 considers shift loading in the context of subsection 6(1) of the SGAA and states that:

A shift-loading is an amount paid to a worker in addition to his or her basic hourly rate for having to work outside the usual span of time for day workers. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements….

If an employee is entitled to a shift allowance in respect of hours other than ordinary hours of work i.e. overtime hours, the Commissioner's view is that the shift allowance does not need to be included in the calculation of OTE in that circumstance.

However, in all other instances, the shift-loading will form part of an employee's OTE.

Under the Award a shift allowance is paid to employee's in respect of their ordinary hours of work and for hours outside of the ordinary hours of work the shift allowance is payable as overtime.

The shift allowance payable in respect of the ordinary hours of work forms part of OTE and should be used in the calculation of the hourly rate of OTE for the purposes of the SGAA by the Group.