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Advice

Subject: Superannuation Guarantee and Overtime

Question:

Should the hourly fixed rate of pay, which is paid in relation to an employee's overtime hours, be included when calculating an employee's ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer:

No, wages paid in relation to overtime hours worked by an employee are not required to be included in OTE for the purposes of subsection 6(1) of the SGAA. Please see 'Explanation' below.

This advice applies for the following period:

For the period of operation of the Award and the Employment Agreement.

Relevant facts and circumstances

The employer employs workers (employees).

All employees are engaged under the Award.

To effect a budgeting and control process the employer has an Agreement with all of its employees that they are required to work 40 hours a week and work overtime to either an agreed amount from week to week as required or a set amount over a period of time.

Rate of pay for overtime worked

Under a clause in the Award the employer is required to pay overtime rates at time and a half for the first three hours and double time thereafter until the completion of the overtime work. Under another clause of the Award the employer has agreed with its workers to pay overtime at a fixed rate. The overtime rate is the same as the employee's normal hourly rate. The employee's normal hourly rate is set at a level above the minimum rate in the Award to compensate each employee for projected overtime that is likely to be worked to allow the employer to meet its obligations under the Award.

Relevant clauses under the Award provide for the following:

Flexibility for an employer and an employee, or group of employees, to enter into an agreement to vary the application of certain terms and conditions in the Award relating to rates of pay (overtime, allowances, penalties and leave loading) and where the work is to be performed.

That the ordinary hours of work for day workers are an average of 38 hours per week not exceeding 152 hours in 28 days and any hours outside of this must be paid for at overtime rates.

That overtime will be paid at time and a half for the first three hours and double time thereafter until the completion of the overtime work.

Relevant clauses in the Agreement provide for the following:

· Definitions for terms used in the Agreement.

· The payment of a superannuation contribution as per the Superannuation Guarantee (Administration) Act 1992 (or as amended from time to time) in respect of the employees wages.

· That the hours of work shall be up to 40 hours per week and any additional reasonable hours as required.

· A schedule containing specific information in regards to the employee including commencement date, job description, duties, supervisor details, the hourly rate of pay and the employment status of the employee.

Relevant legislative provisions

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

Explanation

Summary

The employer should be using the fixed hourly rate of pay, as per the Agreement, plus any applicable allowances, as per the Award, for the calculation of OTE, on the basis of a 40 hour week, for the purposes of subsection 6(1) of the SGAA.

The employer should exclude the fixed hourly rate of pay that is paid in relation to any hours worked by an employee that are overtime hours, and any allowances or loadings specifically referable to overtime hours, when calculating 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%) 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.

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

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

(C) (Repealed by No 15 of 2007)

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

maximum contribution base for the quarter - the maximum contribution base.

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 OTE as defined in subsection 6(1) of 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'.

In relation to the employer's employees, the Award provides that the ordinary hours of work for day workers are an average of 38 per week but not exceeding 152 hours in 28 days. The Agreement provides that work hours shall be up to forty (40) hours per week and any reasonable hours as required by the employer.

Example 2 and Example 3, contained in paragraphs 87 to 98 of SGR 2009/2 deal with situations whereby there is an award and an agreement which provide for different ordinary hours of work. In both examples the agreement prevails over the award where there is a difference in the ordinary hours.

In your situation, the employer, engages its employees under the Award and also has a supplemental Agreement. Under the terms of the Agreement (which overrides the terms of the Award to the extent of any inconsistency), a distinction is made that work hours shall be up to forty hours per week. Therefore, the ordinary hours of work for an employee of the employer for superannuation guarantee purposes is forty hours per week.

Overtime payments

Any hours worked in excess of, or outside the span those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In paragraph 25 of SGR 2009/2 the Commissioner has ruled that:

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 employment and are not OTE because they are not in respect of any particular hours of work.

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 paragraph 14 of SGR 2009/2 the Commissioner has stated that "… 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." Whilst, in this statement, the Commissioner has outlined that he expects that the other hours will be remunerated at a higher rate this does not necessarily have to occur. The definition of OTE relies on whether the payment is made in relation to 'ordinary hours of work' rather than whether the level of pay is differentiated between ordinary hours and other hours. 'expects' as defined in the Macquarie Dictionary (Version 5) is 'to suppose or surmise' and does not impose a requirement.

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 three hours and double time thereafter. There is no provision in the Agreement for or in relation to overtime hours but the Agreement does provide that hours of work shall be forty hours per week so any hours in excess of the stipulated forty hours per week will be overtime or other hours. The Agreement also provides for an hourly rate of pay that is fixed and the same for both ordinary hours and overtime hours.

The employer, for various reasons, pays a fixed rate of pay for all hours worked regardless of whether they are ordinary hours or overtime hours. Therefore, whilst the employer's overtime hourly rate is not at a higher rate than ordinary hourly rate, it is expressly referable to overtime hours as remuneration for overtime hours worked (i.e. any hours worked in excess of the forty hours per week are overtime or other hours and not ordinary hours) and it is at a rate that is higher than the ordinary rate contained in the Award. Therefore the payment for those hours does not form part of OTE for the purposes of subsection 6(1) of the SGAA.